Business Studies

Business Finance

Medium

Arun wants to open a retail mart. He is thinking over the selection of the best financing alternative. He made an estimation that Rs. 40 lakhs, is an adequate amount of money to start the venture. He is planning to finance the business by investing Rs. 25 lakhs of his own money and the rest would be financed by debts. He is very careful about the future cash-flow in the business because the cost of raising funds from external sources is significant. He is working out to ensure that enough funds are available at the right time. If adequate funds are not available, the firm will not be able to honour its commitments and carry out its plans. On the other hand, if excess funds are available, it will unnecessarily add to the cost and may encourage wasteful expenditure. Since it will be a trading business, it needs lower investment in fixed assets. Since Arun is planning to initiate the business from a small level, the quantum of inventory and debtors required is generally low.

"Since it will be a trading business, it needs lower investment in fixed assets." Which factor is highlighted by the aforesaid statement?

Scale of Operation

Nature of Business

Level of Collaboration

Technology upgradation

✅ Correct Option: 2

Option 1 -> Scale of Operation refers to the size or volume of business activities, not the type of business being conducted.

Option 2 -> Nature of Business refers to the type/character of business (trading, manufacturing, service) which determines the capital and fixed asset requirements.

Option 3 -> Level of Collaboration relates to partnerships or joint ventures between entities, not asset investment requirements.

Option 4 -> Technology upgradation concerns modernizing technical infrastructure, which is unrelated to the fundamental business type.

Hence, Option 2: Nature of Business -> The statement specifically mentions "trading business" which directly indicates the nature/type of business. Trading businesses typically buy and sell goods without manufacturing them, requiring significantly lower investment in fixed assets (machinery, plant, equipment) compared to manufacturing businesses that need heavy machinery and production facilities. This distinction in capital requirements is determined by the fundamental nature of the business -> correct

Question 42

"Since Arun is planning to initiate the business from a small level, the quantum of inventory and debtors required is generally low." Which factor is highlighted by the aforesaid statement?

Question 43

What would be the total capital requirement of the business?

Question 44

"He is working out to ensure that enough funds are available at right time." The above statement indicates that Arun is involved in:

Question 45

What is the major issue in the case?

"Since it will be a trading business, it needs lower investment in fixed assets." Which factor is highlighted by the aforesaid statement?

Solution

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