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.

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

Dividend Planning

Product Planning

Financial Planning

Financing decision

✅ Correct Option: 3

Option 1 -> Dividend Planning involves decisions about distribution of profits to shareholders, not about ensuring fund availability.

Option 2 -> Product Planning deals with planning related to product development, mix, and lifecycle, not financial resources.

Option 3 -> Financial Planning is the process of estimating capital requirements and ensuring funds are available at the right time for business needs.

Option 4 -> Financing decision relates to choosing sources of finance (debt/equity), not the overall planning of fund availability.

Hence, Option 3: Financial Planning -> The statement describes the core function of financial planning, which involves determining how much funds are required, when they will be needed, and ensuring their availability at the right time to meet organizational objectives -> correct

Question 41

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

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 45

What is the major issue in the case?

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

Solution

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