Match List-I with List-II
| List-I | List-II |
| Factors affecting decisions | Decision |
| (A) Stability of Earnings | (I) Financing decision |
| (B) Fixed Operating Costs | (II) Dividend decision |
| (C) Diversification | (III) Fixed Capital decision |
| (D) Production Cycle | (IV) Working Capital decision |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (A) - (II), (B) - (I), (C) - (III), (D) - (IV)
(A) Stability of Earnings — this matches (II) Dividend decision. A company whose earnings are steady can promise a higher dividend, because it knows it can keep paying it.
(B) Fixed Operating Costs — this matches (I) Financing decision. A firm with high fixed costs like rent and salaries should keep its fixed interest charges low, so it raises less by debt. That is a choice between sources of funds.
(C) Diversification — this matches (III) Fixed Capital decision. A firm that adds new lines of products needs new plant and machinery, so its need for fixed capital goes up.
(D) Production Cycle — this matches (IV) Working Capital decision. The longer the time from raw material to finished goods, the longer money stays blocked in stock, and the more working capital is needed.
NCERT (2026-27 Edition): “Factors Affecting Dividend Decision … (b) Stability Earnings: Other things remaining the same, a company having stable earning is in a better position to declare higher dividends. As against this, a company having unstable earnings is likely to pay smaller dividend.” “Factors Affecting Financing Decisions … (e) Fixed Operating Costs: If a business has high fixed operating costs (e.g., building rent, Insurance premium, Salaries, etc.), It must reduce fixed financing costs. Hence, lower debt financing is better. …” “Factors affecting the Requirement of Fixed Capital … 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. …” “5. Production Cycle: Production cycle is the time span between the receipt of raw material and their conversion into finished goods. Some businesses have a longer production cycle while some have a shorter one. Duration and the length of production cycle, affects the amount of funds required for raw materials and expenses. Consequently, working capital requirement is higher in firms with longer processing cycle and lower in firms with shorter processing cycle.” |