Match List I with List II.
|
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 |
Choose the correct answer from the options given below :
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → A-I, B-II, C-III, D-IV
A. Credit availed — this matches I. Working capital. When a firm buys on credit from its suppliers, it needs less working capital.
B. Diversification — this matches II. Fixed capital. When a firm starts new lines of business, it needs more fixed assets, so its fixed capital needs go up.
C. Control consideration — this matches III. Capital structure. Issuing more shares can reduce the owners’ control, but debt does not. This affects the choice between debt and equity.
D. Legal constraint — this matches IV. Dividend Decision. The Companies Act puts limits on how much can be paid as dividend.
NCERT (2026-27 Edition): “7. 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.” “6. 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.” “11. Control: Debt normally does not cause a dilution of control. A public issue of equity may reduce the managements’ holding in the company and make it vulnerable to takeover. This factor also influences the choice between debt and equity especially in companies in which the current holding of management is on a lower side.” “(j) Legal Constraints: Certain provisions of the Companies Act place restrictions on payouts as dividend. Such provisions must be adhered to while declaring the dividend.” |