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प्रश्न
The capital structure of XYZ Ltd. is highly geared. Explain any four factors that were considered by its Finance Manager while formulating such a capital structure for the company.
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उत्तर
The four factors that the finance manager of XYZ Ltd. may have considered while formulating a highly geared capital structure are:
- Cost of Capital: The finance manager would have compared the cost of capital for various financing options, including debt and equity. Debt has a lower cost of capital than equity due to tax benefits and lower rates. Debt financing can reduce a company's cost of capital and boost its financial performance.
- Risk Tolerance: The finance manager examined the company's risk tolerance and ability to manage debt commitments. Highly geared capital structures have higher amounts of debt, increasing financial leverage but also increasing risk. The finance manager assessed the company's ability to manage debt payments, interest rate variations, and unfavourable economic situations without compromising financial stability.
- Tax Implications: The finance manager would have analysed the fax implications of loan financing. Debt interest payments are often tax-deductible, potentially saving the corporation money on taxes. Using debt can help XYZ Ltd. minimise its taxable income and tax liabilities, leading to increased profitability and shareholder value.
- Flexibility and Control: The finance manager would have assessed the flexibility and control provided by various capital structures. Debt financing allows companies to maintain control over decision-making and ownership, as lenders do not have voting rights or ownership claims on the company's assets. Debt financing allows for flexible payback periods, enabling companies to align cash flows with debt commitments while maintaining liquidity.
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संबंधित प्रश्न
Big retail stores requires large amount of ............................. capital.
- Fixed
- Working
- Loan
Rizul Bhattacharya after leaving his job wanted to start a Private Limited Company with his son. His son was keen that the company may start manufacturing of Mobile-phones with some unique features. Rizul Bhattacharya felt that the mobile phones are prone to quick obsolescence and a heavy fixed capital investment would be reuired regularly in this business. Therefore he convinced his son to start a furniture business.
Identify the factor affecting fixed capital requirements which made Rizul Bhattacharya to choose furniture business over mobile phones.
Answer the following question.
Explain briefly any four factors affecting the fixed capital requirements of an organisation.
Explain the following as factor affecting the requirements of fixed capital:
Growth prospects
Explain the following as factor affecting the requirements of working capital:
Availability of raw material
Explain the following as a factor affecting the requirement of working capital:
Level of competition
List any three factors affecting the Working Capital requirement of a company.
Which fund in an organisation possess finance for day to day operations
State any three factors that determine the requirement of fixed capital of a company.
Match the factors affecting fixed capital requirements given in Column - I with their explanations given in Column - II:
| Column - I | Column - II | ||
| (A) | Nature of Business | (i) | A trading organisation needs lower investments in fixed assets as compared to a manufacturing organisation. |
| (B) | Technology upgradation | (iii) | A textile manufacturing company is installing a cement manufacturing plant and thus its investments in fixed assets is increasing. |
| (C) | Diversification | (iii) | A capital-intensive organisation requires higher investments in fixed assets as compared to labour- intensive organisation. |
| (D) | Choice of Technique | (iv) | Mobile phones became obsolete faster and are replaced much sooner than furniture or many other assets. Hence, these type of businesses require more fixed capital. |
