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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
Explain the following as factor affecting the requirements of fixed capital:
Scale of operations
Explain the following as factors affecting the requirements of fixed capital:
Financing alternatives
Explain the following as factors affecting the requirements of working capital:
Production cycle
Explain the following as factors affecting the requirement of working capital:
The credit allowed and availed
State, with reason, whether the following statement is True or False.
Requirement of working capital does not depend upon any factor.
Amrit is running a ‘transport service’ and earning good returns by providing this service to industries. Giving reason, state whether the working capital requirement of the firm will be ‘less’ or ‘more’.
Answer the question.
Briefly explain any four types of working capital required by a business concern.
Companies with a higher growth potential are likely to
Higher dividend per share is associated with
A fixed asset should be financed through
Current assets of a business firm should be financed through
______ of a firm refers to those assets which can be converted into cash or cash equivalents in a short period of time.
Working capital is calculated as?
______ decision involves the decision regarding the distribution of profit or surplus of the company.
Assertion (A): A commercial bill is a bill of exchange used to finance the working capital requirements of business firms.
Reason (R): Commercial bill is a short-term, negotiable, self-liquidating instrument which is used to finance the credit sales of firms.
Fixed capital is financed through:
When XYZ company acquired a toy manufacturing company, it paid a large amount for the goodwill. Which source of business funds of XYZ company was impacted?
