Study the following case / situation and express your opinion.
(1) The management of ‘Maharashtra State Road Transport Corporation’, wants to determine
the size of working capital.
a. Being a public utility service provider, will it need less working capital or more ?
b. Being a public utility service provider, will it need more Fixed Capital ?
c. Give one example of public utility service that you come across on day-to-day basis.
a. Being a public utility service provider, it will need less working capital.
b. Yes. Being a public utility service provider, it will need more fixed capital.
c. BEST Brihanmumbai Electric Supply and Transport undertaking is an example of public utility service.
(2) A company is planning to enhance it’s production capacity and is evaluating the possibility
of purchasing new machinery whose cost is ` 2 crore or has alternative of machinery
available on lease basis.
a. What type of asset is machinery ?
b. Capital used for purchase of machinery is fixed capital or working capital ?
c. Does the size of a business determine the fixed capital requirement ?
a. Machinery is a fixed asset. This is because it stays with a company for a long period of time.
b. Capital used for the purchase of machinery is fixed capital. It is the capital that stays in the company almost permanently.
c. Yes, the size of a business determines the fixed capital requirement. Large size business has high fixed capital requirements and vice versa.