Question

‘Kanand Ltd.’ is an automobile manufacturing company started in 2014 under the 'Make in India' initiative of the Government of India. Expecting higher growth in the future, it developed higher capacity in the current year, taking advantage of the subsidies provided by the government. This would enable ‘Kanand Ltd.’ to meet anticipated higher demand quickly. For this, ‘Kanand Ltd.’ invested large amounts in fixed assets, leading to higher requirements of fixed capital. Identify the factor affecting fixed capital requirements that 'Kanand Ltd.' kept in mind to meet higher anticipated demand quickly.

• A. Scale of operations
• B. Nature of business
• C. Diversification
• D. Growth prospects

Hint:

Fixed capital requirements increase with higher anticipated demand, diversification, or expansion plans.

Answer 1

The Correct Option is D

Step 1: Understand the factors affecting fixed capital requirements.
- Fixed capital requirements depend on the scale of operations, nature of the business, growth prospects, and diversification.
- Growth prospects refer to the anticipated increase in demand and the company’s preparations to meet it.
Step 2: Analyzing the scenario.
‘Kanand Ltd.’ anticipated higher growth and took steps to increase its capacity by investing in fixed assets. This decision was driven by the growth prospects of the company.
Conclusion: The factor affecting fixed capital requirements is (D) Growth prospects.