The correct answer is option (1)- A-I, B-II, C-III, D-IV.
|
List I
(Factors)
|
List II
(Factors affecting)
|
| A. Credit availed |
I. Working capital |
| B. Diversification |
II. Fixed capital |
| C. Control consideration |
III. Capital structure |
| D. Legal constraint |
IV. Dividend Decision |
- A. Credit availed corresponds to I. Working capital.
Credit Availed: Just as a firm allows credit to its customers it also may get credit from its suppliers. To the extent it avails the credit on purchases, the working capital requirement is reduced.
- B. Diversification corresponds to II. Fixed capital.
Diversification is a factor that affects the fixed capital requirement. 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.
- C. Control consideration corresponds to III. Capital structure.
Control Considerations: Issues of more equity may lead to dilution of management’s control over the business. Debt financing has no such implication. Companies afraid of a takeover bid would prefer debt to equity.
- D. Legal constraint corresponds to IV. Dividend Decision.
Legal Constraints: Certain provisions of the Companies Act place restrictions on payouts as dividend. Such provisions must be adhered to while declaring the dividend. | 
