Question

State any three factors that determine the requirement of fixed capital of a company.

Hint:

Fixed Capital = "Long-term Assets." Think of things that stay in the business for more than one year, like buildings or heavy machinery.

Answer 1

Step 1: Understanding the Concept:
Fixed capital refers to the investment in long-term assets or fixed assets. The requirement of fixed capital varies significantly from one business to another.
Step 2: Detailed Explanation:
1. Nature of Business: A manufacturing concern requires more fixed capital (for plant and machinery) compared to a trading concern which needs less investment in fixed assets.
2. Scale of Operations: A large-scale organization requires higher investment in fixed assets like land, building, and machinery as compared to a small-scale organization.
3. Technology Upgradation: Industries where technology becomes obsolete quickly (like computers or smartphones) require higher fixed capital to replace old machinery with new technology.
Step 3: Final Answer:
The fixed capital requirement is determined by the nature of the industry, the size of the company, and the pace of technological change.