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प्रश्न
Answer the following question:
The Return on Investment (ROI) of a company ranges between 10 - 12% for the past three years. To finance its future fixed capital needs, it has the following options for borrowing debt:
Option ‘A’: Rate of interest 9%
Option ‘B’: Rate of interest 13%
Which source of debt, ‘Option A’ or ‘Option B’, is better? Give reasons in support of your answer. Also, state the concept being used in taking the decision.
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उत्तर
Option A is better as in order to raise fixed capital, the ROI (Rate of return on investment), i.e. 10-12% should be higher than the interest rate on borrowings, i.e. 9% in option A. Thus, option A should be opted by the company. The concept that is being used in this decision is Trading on Equity as there is favorable financial leverage involved in the first option.
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संबंधित प्रश्न
Match the pairs
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Group A |
Group B |
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a. Fixed Capital |
1. Owned Capital |
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b, Overdraft facility |
2. Bearer document |
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c. Share certificate |
3. Investment in fixed assets |
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d. Debentures |
4. Current Account |
|
e. Return on shares |
5. Application Money |
|
|
6. Dividend |
|
7. Investment in current assets |
|
|
8. Borrowed capital |
|
|
9. Savings Account |
|
|
10. Registered Document |
Explain the following as factor affecting the requirements of fixed capital:
Choice of technique
Explain the following as factors affecting the requirements of working capital:
Nature of business
Explain the following as factors affecting the requirements of working capital:
Seasonal factors
Explain the following as factors affecting the requirement of working capital:
The credit allowed and availed
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Name the method through which the company decided to raise additional capital.
How does working capital affect both the liquidity as well as profitability of a business?
What is working capital? Discuss five important determinants of working capital requirement?
What is meant by capital gearing ratio?
Current assets are those assets which get converted into cash
Current assets of a business firm should be financed through
What are the important determinants of working capital requirement?
Which of the following factors highlight the importance of capital budgeting decisions
Working capital is calculated as?
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A business firm should have extra funds to meet future emergencies. Identify the type of working capital indicated here.
