Question:
Alka Motors is one of the leading automobile companies in India. Due to growing demand for electric vehicles, Alka Motors planned to expand its business and for this, it wanted to raise funds. The finance manager suggested that it should raise funds through equity as the market was bullish. As per the suggestion of finance manager, the company decided to raise ₹ 3,500 crore from equity for its expansion plan for electric vehicles.
The factor that the finance manager took into consideration to raise funds through equity was:
Alka Motors is one of the leading automobile companies in India. Due to growing demand for electric vehicles, Alka Motors planned to expand its business and for this, it wanted to raise funds. The finance manager suggested that it should raise funds through equity as the market was bullish. As per the suggestion of finance manager, the company decided to raise ₹ 3,500 crore from equity for its expansion plan for electric vehicles.
The factor that the finance manager took into consideration to raise funds through equity was:
The factor that the finance manager took into consideration to raise funds through equity was:
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Remember: Bullish market favors Equity. Bearish market favors Debt.
Updated On: Jun 25, 2026
- Cash flow position
- Flexibility
- Cost of debt
- Stock-market conditions
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The Correct Option is D
Solution and Explanation
Step 1: Concept
Factors affecting the Financing Decision.
Step 2: Meaning
A company's capital structure choice (between debt and equity) is significantly influenced by prevailing external market conditions.
Step 3: Analysis
• The stock market generally goes through distinct cyclical phases, primarily bullish (rising prices and optimism) or bearish (falling prices and pessimism).
• During a bullish phase, investors are confident, risk-tolerant, and actively looking to invest in the stock market to maximize returns.
• This positive environment makes it significantly easier for companies to issue equity shares and raise substantial funds from the public successfully.
• The finance manager explicitly noted that "the market was bullish," which is a direct observation of the external market environment rather than internal metrics like cash flow.
Step 4: Conclusion
The recommendation to issue equity was driven entirely by favorable Stock-market conditions.
Final Answer: (D)
Factors affecting the Financing Decision.
Step 2: Meaning
A company's capital structure choice (between debt and equity) is significantly influenced by prevailing external market conditions.
Step 3: Analysis
• The stock market generally goes through distinct cyclical phases, primarily bullish (rising prices and optimism) or bearish (falling prices and pessimism).
• During a bullish phase, investors are confident, risk-tolerant, and actively looking to invest in the stock market to maximize returns.
• This positive environment makes it significantly easier for companies to issue equity shares and raise substantial funds from the public successfully.
• The finance manager explicitly noted that "the market was bullish," which is a direct observation of the external market environment rather than internal metrics like cash flow.
Step 4: Conclusion
The recommendation to issue equity was driven entirely by favorable Stock-market conditions.
Final Answer: (D)
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