Advertisements
Advertisements
Question
Dhaval Acharya, after acquiring a bachelor’s degree in Hotel Management joined his father’s chain of vegetarian restaurants in Ahmednagar. Being young and enterprising, he suggested his father to add a new section of vegetarian bakery items which required an investment of ₹ 5 crores. His father Mr. Aariketh Acharya suggested him to take the decision with caution and understood everything comprehensively as bad decision may damage the financial fortune of business.
Identify the decision suggested by Mr. Aariketh Acharya. State by giving any three reasons as to why he must have advised his son to take decision with caution.
Advertisements
Solution
Mr Aariketh Acharya has suggested capital budgeting decision.
Reasons why he must have advised this decision are:
- These decisions have bearing on the long-term growth. They affect the future prospects of the business.
- These decisions result in large portion of funds being blocked in long term projects, these investments are planned after a detailed analysis.
- These decisions affect the returns of the firm, therefore influence the overall business risk complexion of the firm.
- These decisions once taken, are not reversible without incurring heavy losses. Abandoning a project after heavy investment is costly in terms of waste of funds.
APPEARS IN
RELATED QUESTIONS
Match the pairs
|
Group A |
Group B |
|
a. Fixed Capital |
1. Owned Capital |
|
b, Overdraft facility |
2. Bearer document |
|
c. Share certificate |
3. Investment in fixed assets |
|
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 |
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.
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:
Nature of business
Explain the following as factors affecting the requirements of working capital:
Scale of operations
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
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’.
Write a word or a term or a phrase which can substitute the following statement :
The difference between current assets and current liabilities.
Fixed Capital Working Capital
Answer the question.
Briefly explain any four types of working capital required by a business concern.
What is meant by capital gearing ratio?
Explain any four factors that affect the capital structure of a company.
A fixed asset 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.
