CBSE Class 12-commerce Answered
Shalini, after acquiring a degree in Hotel Management and Business administration took over her family food processing company of manufacturing pickles, jams and squashes. The business was established by her great grandmother and was doing reasonably well. However the fixed operating costs of the business were high and the cash flow position was week. She wanted to undertake modernization of the existing business to introduce the latest manufacturing processes and diversify into the market of chocolates and candies. She was very enthusiastic and approached a finance consultant, who told her that approximately Rs. 50 lakh would be required for undertaking the modernization and expansion programme. He also informed her that her stock market was going through a bullish phase. 1. Keeping the above considerations in mind, name the source of finance Shalini should not choose for financing the modernization and expansion of her food processing business. Give one reason in support of your answer. 2. Explain any two other factors, apart from those stated in the above situation, which Shalini should keep in mind while taking this decision.
Asked by purnayyap | 26 Apr, 2020, 12:06: PM
Expert Answer
- In the given case, Shalini should not choose Debt Capital as the source of finance because the fixed operating cost of the company are high and it cannot take the additional burden of fixed commitments in the firm of repayment of capital and the interest thereon.
- Flexibility, Risk, Cost of Equity, Floatation cost, regulatory framework, etc. are some of the factors which Shainin should keep in mind while taking the decision.
Answered by Surabhi Gawade | 26 Apr, 2020, 01:40: PM
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