Briefly explain the factors affecting the fixed capital requirement of business.
Answers
Answer:
The requirement of fixed capital depends upon various factors which are explained below:
- Nature of Business:
- Scale of Operation:
- Technique of Production:
- Technology Up-gradation:
- Growth Prospects:
- Diversification:
- Availability of Finance and Leasing Facility:
- Level of Collaboration/Joint Ventures:
Answer:
The factors determining, affecting or influencing fixed capital requirements of a business are briefly given in the following nine points:
Nature of business is the most crucial factor of all that significantly affects its fixed capital requirement.
Size of business has a direct relationship with its fixed capital need.
The availability of fixed capital impacts the scale of operation.
Modern technologies demand more fixed capital than traditional ones.
Manufacturing of complex products need more fixed capital than what amount is required for making simple products.
The scope of activities determines fixed capital needs of a business.
The method of acquiring assets for business use influence it.
The allocation of subsidy by government also has an influence on it.
Along with above eight main factors, other minute considerations like the lifetime of assets, annual maintenance costs (AMC), sustainability of sensitive projects, stages in development of a business, etc., also influence the fixed capital requirements to some extend.
Explanation: