Question

Explain briefly any four factors affecting the fixed capital requirements of an organisation.

Answer 1

The capital invested in fixed assets like land and buildings, plant and machinery, furnitures and fixtures etc, is known as fixed capital. How much is to be invested in fixed assets is determined by many factors.

The factors affecting the fixed capital requirements are :

(1) Nature of Business:

The type of business has a bearing upon the fixed capital requirement.

(2) Scale of Operations:
A larger organisation operating at a larger scale needs higher investment in fixed assets as compared to a small organisation

(3) Technology Upgradation:
In certain industries assets become obsolete sooner. Consequently, their replacements become due faster. For example, technology becomes obsolete faster than furniture.

(4) Financing Alternatives:

If alternatives of leasing or hire purchase are available, the assets are not to be purchased outrightly, but only rent or installments have to be paid