Question:
Kanav, after passing out of college with specialization in renewable energy, was determined to start a solar power plant. The venture required heavy investment in plant and machinery and less on manual labour. Kanav invested in the latest solar panel technology and infrastructure and purchased the latest solar panels, inverters and battery storage systems.
Despite the high risk and substantial investment, Kanav's business had good expansion possibilities. The world was increasingly moving towards clean energy solutions, and there was a growing demand for sustainable power sources. So, Kanav decided to create a higher capacity to meet the anticipated demand quickly. This entailed further investment in fixed assets which Kanav was able to arrange.
As the years passed, the solar power plant did very well and played a pivotal role in the city's transition towards a greener and more sustainable future.
Identify and explain the two factors affecting the fixed capital requirements discussed in the above case.
Kanav, after passing out of college with specialization in renewable energy, was determined to start a solar power plant. The venture required heavy investment in plant and machinery and less on manual labour. Kanav invested in the latest solar panel technology and infrastructure and purchased the latest solar panels, inverters and battery storage systems.
Despite the high risk and substantial investment, Kanav's business had good expansion possibilities. The world was increasingly moving towards clean energy solutions, and there was a growing demand for sustainable power sources. So, Kanav decided to create a higher capacity to meet the anticipated demand quickly. This entailed further investment in fixed assets which Kanav was able to arrange.
As the years passed, the solar power plant did very well and played a pivotal role in the city's transition towards a greener and more sustainable future. Identify and explain the two factors affecting the fixed capital requirements discussed in the above case.
Despite the high risk and substantial investment, Kanav's business had good expansion possibilities. The world was increasingly moving towards clean energy solutions, and there was a growing demand for sustainable power sources. So, Kanav decided to create a higher capacity to meet the anticipated demand quickly. This entailed further investment in fixed assets which Kanav was able to arrange.
As the years passed, the solar power plant did very well and played a pivotal role in the city's transition towards a greener and more sustainable future. Identify and explain the two factors affecting the fixed capital requirements discussed in the above case.
Updated On: Feb 21, 2025
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Solution and Explanation
The factors affecting the fixed capital requirements in the case are:
(i) Choice of technique:
- A capital-intensive organization requires higher investment in plant and machinery as it relies less on manual labour, thus higher fixed capital.
- Labour-intensive organisations require less investment in fixed assets. Hence, their fixed capital requirement is lower.
(ii) Growth prospects: - When growth is expected, a company may choose to create higher capacity in order to meet anticipated higher demand quicker.
- This entails larger investment in fixed assets and consequently larger fixed capital.
- Labour-intensive organisations require less investment in fixed assets. Hence, their fixed capital requirement is lower.
(ii) Growth prospects: - When growth is expected, a company may choose to create higher capacity in order to meet anticipated higher demand quicker.
- This entails larger investment in fixed assets and consequently larger fixed capital.
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