Q.Explain the factors affecting the requirement of Fixed Capital.

How much fixed capital a company needs is not the same for every business — it depends on what the business does, how big it is, and how it chooses to acquire and use its assets.

1. Nature of the business. A manufacturing company (needing heavy plant, machinery, and factory buildings) requires far more fixed capital than a trading or service company.

2. Size and scale of operations. Large-scale production needs proportionately larger factory premises and machinery, and therefore larger fixed-capital investment, than a small-scale unit.

3. Choice of technology. A capital-intensive method of production (heavily automated) requires much more fixed capital than a labour-intensive method relying more on manual labour.

4. Method of acquiring fixed assets. Buying land, buildings, and machinery outright needs more fixed capital upfront than leasing or hiring them, which spreads the cost over time.

5. Diversification and expansion plans. A company planning to diversify or expand must provide, in advance, for the additional fixed capital such plans require. …

Naming only 'size of the business' as the sole factor and omitting technology choice and the purchase-vs-lease m …