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CUET Business Studies 2025 PYQs22 May Shift 2. Free, no login required.

Business Studies

past year questions, CUET Business Studies 2025 22 May Shift 2

Business Finance

past year questions, Business Studies, CUET Business Studies 2025 22 May Shift 2

Easy

Passage 1: Detrimental debt

On the basis of this passage, answer the questions from Q. No. 41 to Q. No. 45

Even successful businesses have debt, but how much is too much? Learning how to manage debt is what can put you ahead. Taking on the right amount of debt can mean the difference between a business struggling to survive and one that can respond nimbly to changing economic or market conditions. A number of circumstances may justify acquiring debt. As a general rule, borrowing makes the most sense when you need to bolster cash flow or finance growth or expansion. But while debt can provide the leverage you need to grow, too much debt can strangle your business. So the question is: How much debt is too much?

A business that doesn't grow dies. You've got to grow, but you've got to grow within the financial constraints of your business. What is the ideal capital structure a business needs in its industry to remain viable? The higher the volatility (in your industry), the less debt you should have. The smaller the volatility, the more debt you can afford. Consider the capital structure of a growing company, NextGen Ltd.

Total Funds used Rs. 30 Lakh

Interest rate is 10% p.a.

Tax rate 30%

EBIT Rs. 4 Lakh

Nextgen Ltd. has an option to raise different amounts of debt:

Situation I :No Debt

Situation II:Rs. 10 Lakh Debt

Situation III:Rs. 20 Lakh Debt

What does the term "Capital Structure" imply?

Solution

✅ Correct Option: 4

Option 1 -> Incorrect because capital structure is not about the relationship between debt and earnings; earnings are income statement items, not financing sources.

Option 2 -> Partially correct but incomplete; retained earnings are only one component of equity, and capital structure encompasses total equity, not just retained earnings.

Option 3 -> Incorrect because earnings represent profitability, not a source of financing; capital structure deals with how a company funds its operations.

Option 4 -> Correct definition; capital structure represents the proportion of debt and equity used by a company to finance its assets and operations.

Hence, Option 4: It indicates a mix between debt and equity -> Capital structure is a fundamental concept in corporate finance that refers to the way a company finances its overall operations and growth by using different sources of funds, primarily consisting of debt (bonds, loans) and equity (common stock, preferred stock, retained earnings). This mix determines the company's financial leverage and risk profile. -> correct

More from this set:

Question 41

"Learning how to manage debt is what can put you ahead". Identify the concept highlighted in the aforesaid statement.

Question 42

The EBT of NextGen Ltd with zero debt situation will be

Question 43

Identify the correct statement.

Question 45

What does EBIT stands for:

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CUET Business Studies Past Year Questions (Topic-Wise)