Fixed capital requirements are determined by which of the following factor?

Nature of Business

The correct answer is option 1- Nature of Business.

Nature of Business: The type of business has a bearing upon the fixed capital requirements. For example, a trading concern needs lower investment in fixed assets compared with a manufacturing organisation; since it does not require to purchase plant and machinery, etc.

Fixed capital refers to investment in long-term assets. Management of fixed capital involves the allocation of a firm’s capital to different projects or assets with long-term implications for the business. There are 8 factors affecting the fixed capital requirements-

(1) nature of business

(2) scale of operation

(3) choice of technique

(4) growth prospects

(5) financial alternatives

(6) level of collaboration

(7) Technology Upgradation

(8) Diversification