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Question

Rizul after leaving his job wanted to start a Private Limited Company with his son. His son was keen that the company should start manufacturing of mobile phones with some unique features. Rizul felt that mobile phones are prone to quick obsolescence and a heavy fixed capital investment would be required regularly in this business. Therefore, he convinced his son to start a furniture business. Identify the factor affecting fixed capital requirements which made Rizul to choose furniture business over mobile phones.


A

Finance alternatives

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B

Technology upgradation

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C

Choice of technique

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D

All of the above

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Solution

The correct option is B

Technology upgradation


Technological Upgradation: Company X being a manufacturing company uses machinery in the production line. As machines become obsolete, they have to be upgraded from time to time. And to ensure that, Company X needs more fixed capital to purchase fixed assets such as machines. So any company which is vulnerable to assets becoming obsolete quickly requires more fixed capital.


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