Saksham Ltd. a firm manufacturing textiles, wished to diversify their business. They were considering

Hi, I have a question and I hope anyone could answer it:

Saksham Ltd. a firm manufacturing textiles, wished to diversify their business. They were considering two options, either to diversify into manufacturing tooth-paste or switches. They wanted to invest in the purchase of land, to set up a manufacturing unit in the backward areas of Gujarat, which would also lead to the generation of employment opportunities in the area, but only after fulfilling all legal requirements and taking appropriate steps to ensure that the environment was not polluted. The finance manager of the company, Mr. Ramakant was asked by the management to prepare a report on the factors which should be considered while making the above investment decision. 

A. State any two factors that Mr. Ramakant would give in his report. 

B. Also state any one reason which makes it important for the above decision to be made carefully. 

C. And state two values being fulfilled by Saksham Ltd. 

1 Answer

  1. A. Factors that should be kept in mind by the company while making the investment decision:

    a. The amount of cash flows should be carefully analyzed before considering the decision. 

    b. The rate of return of the project based on expected return and assessment of the risk involved from each proposal should be analyzed.

      c. The decision to invest in a particular project involves a number of calculations regarding the amount of investment, interest rate, cash flows and rate of return.

    B. The following are the reasons that make the above decision to be made carefully: 

    a. These decisions have a bearing on the long term growth. 

    b. These decisions result in a substantial portion of capital funds being blocked in long-term project. 

    c. These decisions influence the overall business risk complexion of the firm. 

    d. These decisions once taken, are not reversible without incurring heavy losses.  

    C. Following are the values being fulfilled by Saksham Ltd: 

    a. Responsibility

    b. Respect for law and order 

    c. Sensitivity to environment 

    d. Development of backward regions. 

    e. Generating employment opportunities

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