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What is meant by Capital Budgeting State any four factors affecting fixed capital requirement of a firm. |
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Answer» Meaning- Decision to invest in fixed assets are known as capital budgeting decision. Factors affecting fixed capital requirement- 1. Nature of business- The type of business has a bearing upon the fixed capital requirement. 2. Scale of operation- A larger organization requires higher investment in fixed capital. 3. Choice of technique- A capital intensive organization requires higher investment in plant and machinery. 4. Technology upgradation- Such organisations which use assets which are prone to obsolescence require higher fixed capital. 5. Growth proSQPects-Higher growth of an organization generally requires higher investment in fixed assets. 6. Diversification- With diversification the fixed capital requirements increase. 7. Financing alternatives- Availability of leasing facility may reduce the funds required to be invested in fixed assets. 8. Level of collaboration- Collaboration reduces the level of investment in fixed assets. |
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