Question

Pinnacle Ltd. deals in the sale of stationery and office furniture. They source the finished products from reputed brands who give them four to six months credit. Seeing the demand for electronic items, they are also planning to market these items by opening outlets throughout India. For this, they have decided to join hands with a Japanese electronic goods manufacturer. 

Identify and state any two factors that would affect the fixed capital requirement of Pinnacle Ltd. as discussed above.

Answer 1

Following are the factors that would affect fixed capital requirement of Pinnacle Ltd. : 

1. Diversification – If the company decides to diversify its existing business activities, it will require higher investment in fixed assets. 

2. Level of collaboration – If some business organisations share each other’s facilities, these organisations will require lesser fixed capital. If there is no collaboration, an organisation will require more fixed capital to run its business smoothly.