Zed Ltd. has sterling silver manufacturing plant in India and is enjoying a buoyant demand for its products as economic growth is about 7% to 8 % which is used to make handicraft pieces, forks, spoons, knives, etc. Sterling silver is an alloy of silver containing 92.5% by weight of silver and 7.5 % by weight of other metals like copper. The demand for sterling silver is growing due to its extrinsic value. It is planning to set-up a new sterling silver plan to cash on the increased demand it is facing. It is estimated that it will require about Rs 5000 crores for the set-up and about Rs 700 crores of working capital to start the new plant. As a highly capital intensive sector what factors will affect the fixed and working capital? Give supporting reasons for answers.
Zed Ltd. has sterling silver manufacturing plant in India and is enjoying a buoyant demand for its products as economic growth is about 7% to 8 % which is used to make handicraft pieces, forks, spoons, knives, etc. Sterling silver is an alloy of silver containing 92.5% by weight of silver and 7.5 % by weight of other metals like copper. The demand for sterling silver is growing due to its extrinsic value. It is planning to set-up a new sterling silver plan to cash on the increased demand it is facing. It is estimated that it will require about Rs 5000 crores for the set-up and about Rs 700 crores of working capital to start the new plant. As a highly capital intensive sector what factors will affect the fixed and working capital? Give supporting reasons for answers.
Factors that will affect fixed and working capital include :
(i) Growth prospects :As Zed Ltd.’s products made by sterling silver will have high demand, Zed Ltd. Will have higher growth prospects and will require working capital in the short-run and fixed capital in the long-run.
(ii) Scale of operation: Sterling silver production is highly capital intensive and will require a huge amount of fixed capital.
(iii) Availability of raw material: Raw materials required are silver and copper which are expensive metals and are not easily available. Accordingly, working capital will be high as Zed Ltd. Will have large inventories for a specific time period to cater to the demand.
(iv) Nature of business: Zed Ltd.’s sterling silver production unit is highly capital intensive and will take more time to convert inventory of raw materials into finished goods. Thus, the fixed and working capital requirements of Zed Ltd. Will be high.
Factors that will affect fixed and working capital include :
(i) Growth prospects :As Zed Ltd.’s products made by sterling silver will have high demand, Zed Ltd. Will have higher growth prospects and will require working capital in the short-run and fixed capital in the long-run.
(ii) Scale of operation: Sterling silver production is highly capital intensive and will require a huge amount of fixed capital.
(iii) Availability of raw material: Raw materials required are silver and copper which are expensive metals and are not easily available. Accordingly, working capital will be high as Zed Ltd. Will have large inventories for a specific time period to cater to the demand.
(iv) Nature of business: Zed Ltd.’s sterling silver production unit is highly capital intensive and will take more time to convert inventory of raw materials into finished goods. Thus, the fixed and working capital requirements of Zed Ltd. Will be high.
