Meaning- Decision to invest in fixed assets are known as capital budgeting decision.
Factors affecting fixed capital requirement-
1. Nature of business- The type of business has a bearing upon the fixed capital requirement.
2. Scale of operation- A larger organization requires higher investment in fixed capital.
3. Choice of technique- A capital intensive organization requires higher investment in plant and machinery.
4. Technology upgradation- Such organisations which use assets which are prone to obsolescence require higher fixed capital.
5. Growth proSQPects-Higher growth of an organization generally requires higher investment in fixed assets.
6. Diversification- With diversification the fixed capital requirements increase.
7. Financing alternatives- Availability of leasing facility may reduce the funds required to be invested in fixed assets.
8. Level of collaboration- Collaboration reduces the level of investment in fixed assets.
