Question

Joseph is in the process of developing his business plan for a new venture of manufacturing and selling ball pens. He is required to estimate the funds required and classify them as fixed capital and working capital. Identify which of the following will be included while estimating the working capital requirement for his venture.

Options

• Rent to be paid for the premises

• Purchase cost of the machine

• Money spent on renovation of an existing office building

• Purchase cost of computer licenses for running software on computer

Answer 1

Rent to be paid for the premises

Explanation:

Working capital refers to the funds required for the day-to-day operations of a business, such as paying wages, rent, and bills and buying raw materials. The rent paid for premises is a recurring operational expense, so it is included in working capital requirements. In contrast, the purchase of machines, renovation costs, and computer licenses are long-term investments, which fall under fixed capital.