Read the following passage carefully and answer the questions given below.

'Laxmi Enterprise' is a textile manufacturing firm. It has been consistently earning good profits for many years. This year, too, it has been able to generate enough profits. There is availability of enough cash in the company and good prospects for growth in the future. Now they wished to diversify their business. The CEO of Laxmi Enterprise is considering two options, either to diversify into manufacturing cosmetics or switches. So they wanted to purchase land, to set up a manufacturing unit in the backward area of Assam, which would lead to the generation of employment opportunities in the area, but only after fulfilling all legal requirements and taking appropriate steps to ensure that the environment was not polluted. The finance manager of the company, Mr. Vikrant was asked by the management to prepare a report on the factors that should be considered while making their decisions.

The decision considered by the management in the above case is related to:

Business diversification

The correct answer is Option (1) → Business diversification

The case clearly states that Laxmi Enterprise is already in the textile business and is now considering entering cosmetics or switches. This is an example of diversification, i.e., starting operations in a new line of business.

• Debt management → Not related here, as there is no mention of raising or restructuring debt.

• Maximising retained earnings → While profits and cash availability are mentioned, the core decision is about where to invest, not about retaining earnings.

• Business consolidation → Refers to strengthening or merging within the same line of business, but here the firm is entering new sectors.