Which factors are to be considered while determining Fixed Capital, out of the following ?

(A) Technology upgradation

(B) Diversification

(C) Credit allowed by suppliers

(D) Operating efficiency

(E) Seasonal factors

Choose the correct answer from the options given below :

(A) and (B) only

The correct answer is option (3) : (A) and (B) only

There are 8 factors affecting the fixed capital.

(a)Technology Upgradation : In certain industries, assets become obsolete sooner. Consequently, their replacements become due faster. Higher investment in fixed assets may, therefore, be required in such cases.

For example, computers become obsolete faster and are replaced much sooner than say, furniture.

Thus, such organisations which use assets which are prone to obsolescence require higher fixed capital to purchase such assets.

(b) Diversification: A firm may choose to diversify its operations for various reasons, With diversification, fixed capital requirements increase e.g., a textile company is diversifying and starting a cement manufacturing plant. Obviously, its investment in fixed capital will increase

Other six factors affecting are : -

(1) nature of business

(2) scale of operation

(3) choice of technique

(4) growth prospects

(5) financial alternatives

(6) level of collaboration