Question

Arun is a successful businessman in the paper industry. During his
recent visit to his friend's place in Mysore, he was fascinated by the
exclusive variety of incense sticks available there. His friend tells him
that Mysore region in known as a pioneer in the activity of Agarbathi
manufacturing because it has a natural reserve of forest products
especially Sandalwood to provide for the base material used in
production. Moreover, the suppliers of other types of raw material
needed for production follow a liberal credit policy and the time
required to manufacture incense sticks is relatively less. Considering
the various factors, Arun decides to venture into this line of business
by setting up a manufacturing unit in Mysore.
In context of the above case:
1. Identify of the above case:
2. Identify the three factors mentioned in the paragraph
which are likely to affect the working capital requirements
of his business.​

Answer 1

Answer:

Explanation:

Investment decision has been taken by Arun. Investment decision seeks to determine as to how the firm’s funds are invested in different assets. It helps to evaluate new investment proposals and select the best option on the basis of associated risk and return. Investment decision can be long term or short-term. A long-term investment decision is also called a Capital Budgeting decision

The three factors mentioned in the paragraph which are likely to reduce the working

capital requirements of his business are as follows: .

Availability of raw material: As there is easy availability of Sandalwood which is used as the base material for production, the working capital requirements of his business will be less as there is no need to stock the raw materials.

Production cycle: The production cycle is shorter and less time is required to manufacture incense sticks. Thus, the working capital requirements of his business will be low.

Credit availed: Due to the fact that the suppliers of other types of raw material needed for production follow a liberal credit policy, the business can be operated on minimum working capital.

Answer 2

Explanation:

Arun has made a choice on an investment. The goal of an investment choice is to choose how the corporation will allocate its capital among various assets. It is beneficial to assess new investment options and choose the best one based on the risk and return involved. Long-term or short-term investment decisions are both possible. A capital budgeting decision is another name for a long-term investment choice.

The three elements listed in the paragraph that are likely to make work less efficient

His company's capital requirements are as follows:

• Raw material accessibility: Because sandalwood, the primary raw material utilised in production, is widely accessible, his company will need less working capital because it won't need to keep raw materials on hand.

• Production cycle: Making incense sticks requires a shorter production cycle and less time. Thus, his company won't need much in the way of working capital.

• Credit obtained: The company may function with a minimal amount of working capital since the suppliers of various types of raw materials required for manufacturing have a lenient credit policy.

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