Business Studies Solved Question Papers' 2016 | AHSEC Class 12 Business Studies Solved Question Papers

[Class 12 Business Studies Solved question Paper, AHSEC, 2016, Assam Board]

Full Marks: 100
Time: 3 hours
The figures in the margin indicate full marks for the questions.

1. Answer the following questions: 1*10=10

a)      Why is it said that management is pervasive?         1
Ans: Because it is needed in all spheres say-business and non business organization.
b)      What is the main objective of fatigue study?            1
Ans: Fatigue study: It refers to the duration and frequency of rest intervals to complete a particular job. The rest refreshes the workers. They work again with full energy and stamina. Long working hours, poor working conditions, unsuitable work can also be the causes of fatigue. It should be reduced.
c)       What is the first step of staffing process?                     1
Ans: Enumerating man power requirement: Staffing process begins with the estimation of man power requirement which means finding out number and type of employees need by the org. in future.  
d)      When working capital becomes negative?                    1
Ans: If current liabilities are more than current assets then working capital becomes negative.  
e)      What is the other name of primary market?            1
Ans: Primary market which is also called new issue market represents a market where new securities i.e. shares and bonds that have never been previously issued are offered. It is a market of fresh capital. The main function of this market is to facilitate the transfer of funds from willing investors to the entrepreneurs.
f)       What do you mean by Brand?                            1
Ans: It can be designed as the process of using a name term, symbol or design to identify a product. It is simply giving a name / a sign / a symbol etc to a product. For example: Pepsi, Nike etc.
g)      Name the association that has devised a code of conduct for Indian managers.                          1
Ans: All India Management Association (AIMA) has devised a code of conduct for Indian managers.
h)      How management principles are derived?   1
Ans: Principles of Management are the statements of fundamental truth which provide guidelines which help management to take decisions and action. They are derived from observation and experimental studies.
2. Write two differences between authority and responsibility.        2
Ans: Difference between authority and responsibility:
Authority is the right to issue command and make decisions.
Responsibility is obligation towards organization and decisions made.
It is power.
It is a duty.
Direction Flow
It flows downwards.
It flows upwards.
It can be delegated to others.
It cannot be delegated.
3. Give two points of distinction between training and development.                   2
Ans: Difference between Training and Development:
a)      MEANING
It is a process of imparting knowledge for doing specific job.
It is a process of learning opportunities designed to help employees grow.
b)      Nature
It is a job oriented process.
It is a carrier process.

4. State two importance of supervision.                               2
Ans: Supervision performs the following important functions which help the organisation to achieve objectives function of the supervisor:
a) Planning the work: The supervisor has to determine work schedule for even and steady flow of work.
b) Motivation: The supervisor motivates his subordinates by providing financial and non financial incentives.
5. Mention two points of distinction between rules and policies.                            2
Ans: Difference between Policies and Rules
Policies are guidelines which facilitate the achievement of predetermined objectives.
Rules are norms regarding behaviour of employees.
They are general statements.
Rules are specific statements.
Policies describe what is to be done under different situations.
Rules describe what is to be done and what is not to be done by the employees.
Policies are less rigid.
Rules are very rigid.

6. Write two features of Capital Market.                              2
Ans. Features of Indian Capital Market

a)      Dealing in Securities: It deals in long-term marketable securities and non-marketable securities.
b)      Segments: It included both primary and secondary market. Primary market is meant for issue of fresh shares and secondary market facilitates buying and selling of second hand securities.
7. Explain briefly the process of Controlling.      3
Ans: Following are the steps of controlling process:
(i) Setting Performance Standards: the first step of controlling is to set performance standards. Standards are those criteria s on the basis of which the actual performance is measured. Thus, standards serve as benchmarks towards which an organization strives to work. Standards can be set in both quantitative as well as qualitative terms.
(ii) Measurement of Actual Performance: the second step in the controlling process is the measurement of actual performance. The measurement of actual performance is done on the basis of pre-determined standards. The measurement of actual performance tells the manager whether the work has been done according to the plan or not.
(iii) Comparison of Actual Performance with Standards: At this step, actual performance is compared with the standards and deviations are found out.
(iv) Analyzing Deviations: Deviations are examined the light of pre-determined Deviation Tolerance Limits. If the deviations are within limits they can be avoided. But if they cross the limits, they should be reported to the higher level managers without any delay.
(v) Taking Corrective Action: The last but the most important step in the controlling process is taking corrective action. By now the deviations and their causes become known. Now is the turn of removing the hurdles in the actual work progress. The purpose of corrective action is to bring the actual work progress to the level of expected progress.
8. State three advantages of Management Information System.            3
Ans: Advantages of MIS are:
a) It provides accurate information to all the managers working at different levels.
b) It helps in planning, controlling and decision-making.
c) It provides cost effective management information.
d) It improves quality of information with which a manager works.
e) It reduces information overload i.e., only relevant information is provided to them.
State Return On Investment (ROI) as a technique of modern control.
Ans: Return on Investment (ROI): Investment consists of fixed assets and working capital used in business. Profit on the investment is a reward for risk taking. If the ROI is high then the financial performance of a business is good and vice-versa. ROI is a tool to improve financial performance. It helps the business to compare its present performance with that of previous years' performance.
9. Explain three factors affecting financing decision of a corporate organization.        3
Ans. Factors affecting investment/capital budgeting decisions
1) Cash flow of the project: The amount of expected cash inflow from an investment proposal must be assessed before investing in the proposal.
2) Return on investment: An investment proposal with high expected return should be preferred.
3) Risk involved: The company must try to calculate the risk involved in every proposal and should prefer the investment proposal with moderate degree of risk only.
b) Finance decision: The second important decision which finance manager has to take is deciding source of finance. Under this decision finance manager has to decide how much to raise from owner’s fund and how much to raise from borrowed fund. This type of decision is also known as capital structure decision.
Explain three basic areas of financial management.
Ans: The finance functions relate to three major decisions which every finance manager has to take:
a) Investment decision or capital budgeting
b) Finance Decision or Capital Structure decision
c) Dividend decision
a) Investment decision: Funds procured from different sources have to be invested in acquiring fixed assets as well as current assets. When decision regarding fixed assets is taken it is called capital budgeting decision.
b) Finance decision: The second important decision which finance manager has to take is deciding source of finance. Under this decision finance manager has to decide how much to raise from owner’s fund and how much to raise from borrowed fund. This type of decision is also known as capital structure decision.
c) Dividend decision: Dividend Decision: This decision is concerned with distribution of surplus funds. The profit of the firm is distributed among various parties such as creditors, employees, shareholders, debenture holders etc. Under this decision the finance manager decided how much to be distributed in the form of dividend and how much to keep aside as retained earnings.
10. State the importance of consumer protection from businessmen’s point of view.                    3
Ans: Importance of Consumer Protection from the point of view of business:
a)      Business is a means of human welfare: Business serves the customer. It is in the interest of both the consumer and the businessman to ensure that the business is run well because ignoring the interest of the consumer may be a sure death of the business.
b)      Growth with social justice: Growth with social justice is the prime feature of our economic philosophy. Exploitation of consumers is against the directive principles of State Policy laid down in our Indian Constitution.
c)       Single versus multiple objectives: Business works for all stakeholders – consumers, shareholders, employees, government, and the public. It is both a social and economic institution. Therefore it cannot just make profit by ignoring the interest of the society.
d)      Power Centre: Business has considerable influence over society and government. Therefore it has to set standards regarding food, dress habits, living styles, etc which will not damage the cause of society.
e)       Self interest: Due to liberalization and globalization, firms have to compete with multinationals. Unless they become customer oriented and provide right quality, quantity and price they cannot survive for long time and will be out beaten by competition from multinationals.
Write three objectives of entrepreneurial development.
11. How complaints are redressed under the Consumer Protection Act 1986?                    3
Ans: Procedure for filling complaint: The complainant or his authorised agent can present the complaint in person or send it by post to the appropriate forum or Commission, as the case may be, within a period of 2 years from the date on which the cause of action has arisen. No fee is charged for filing a complaint before the District Forum or the State Commission or the National Commission. A complaint should always be supported and verified by an affidavit.
The District Forum, State Commission and National Commission are required to decide complaints, as far as possible, within three months from date of notice received by the opposite parties. For those complaints which require laboratory analysis or testing of commodities, the period is extended to five months. The consumer has the right to file an appeal within 30 days with the next higher forum if he feels justice has not been done to him. If a consumer is not satisfied with the decision of national commission he can move to Supreme Court with the require fees within 30 days.
State any three functions of an entrepreneur in relation to economic development.
12. Outline briefly the process of planning.                        5
Ans: Steps in the Process of Planning
1.       Setting organizational objectives: The first and foremost step in the planning process is setting organizational objectives or goals, which specify what the organisation wants to achieve.
2.       Developing planning premises: Planning is concerned with the future, which is uncertain. Therefore, the manager is required to make certain assumptions about the future. These assumptions are called premises.
3.       Identifying alternative courses of action: Once objectives are set and assumptions are made, then the next step is to identify all possible alternative courses of action.
4.       Evaluating alternative courses: The positive and negative aspects of each proposal need to be evaluated in the light of the objective to be achieved, its feasibility and consequences.
5.       Selecting the best possible alternative: This is the real point of decision making. The best/ideal plan has to be adopted, which must be the most feasible, profitable and with least negative consequences. Sometimes, a combination of plans may be selected instead of one best plan.
6.       Implementing the plan: Once the plans are developed, they are put into action. For this, the managers communicate the plans to all employees very clearly and allocate them resources (money, machinery, etc.).
7.       Follow-up action: The managers monitor the plan carefully to ensure that the premises are holding true in the present condition or not. If not, adjustments are made in the plan.
State five leading importance of planning
Ans. Planning is of vital importance in the managerial process. No enterprise can achieve its objectives without systematic planning. “Planning is the heart of management”. It is also considered to be the basic function of management. The following points highlight the importance of planning function of management:
1.       Planning provides directions: By stating in advance how work is to be done, planning provide direction for action. If goals are well defined, employees are aware of what the organization has to do and what they must do to achieve those goals. Departments and individuals in the organization are able to work in coordination.
2.       Planning keeps the organization on the right path: If there was no planning, employees would be working in different directions and the organization would not be able to achieve its goals efficiently.
3.       Planning reduces the risks of uncertainty: Business enterprises operate in an uncertain environment and face several types of risks. Planning enables these enterprises to predict future events and prepare to face the unexpected events. With the help of planning, managers can identify potential dangers and take steps to overcome them. Thus, planning helps risk and uncertainty.
4.       Planning reduces overlapping and wasteful activities: Since planning ensures clarity in thought and action, work is carried on smoothly without interruptions. There is no confusion and misunderstanding. Useless and redundant activities are minimized or eliminated.
5.       Planning promotes innovative ideas: Planning is thinking in advance and, therefore, there is scope of finding better ideas and better methods and procedures to reach the objectives/goals of the enterprise.
6.       Planning establishes standards for controlling: Planning provides the goals or standards against which the actual performance can be measured and evaluated. A comparison of actual performance with the standards helps to identify the deviations and to take corrective action.  
13. Distinguish between Taylor’s scientific management and Fayol’s principles of management.  5
Ans: Difference between Taylor’s scientific management and Fayol’s principles of management:
Point of Difference
Taylor’s techniques and principles are concerned with worker’s efficiency.
Fayol’s principles are concerned with management efficiency.
Taylor laid great emphasis on standardisation of work.
Fayol laid great emphasis on functions of managers.
Applicable to specialised situation.
Universally applicable.
Unity of command
Did not follow this principle as Taylor insisted on minimum 8 bosses. (This point was asked in 2015 exam)
Strictly followed this principles i.e. one boss for one employee.
Taylor’s techniques are expressed as scientific management.
Fayol’s techniques are expressed as general theory of administration.
Taylor developed a personality of scientist and become famous as father of scientific management.
Fayol developed the personality of researcher and practitioner and become famous as father of general management.

14. What is liberalization? Explain the process of liberalization in India.                               5
Ans: Liberalisation of economy means to free it from direct or physical control imposed by the government.  In other words, it is the process by which government control over the industry is being loosened. It implies liberating the trade and industry from unwanted government control and restriction. Liberalization of the Indian industry has been taken in the following way:
a)      Abolishing licensing requirements in most of the industries except a short list.
b)      Freedom in deciding the scale of business activities.
c)       Freedom in fixing the prices of goods services.
d)      Removal of restriction on the movement of goods and services.
e)      Liberalisation in import and export.
Discuss the impact of economic reforms on business and industry.
Ans: Impact of Government Policy Changes on Business and Industry (Significance of liberalisation and globalisation):
a)      Increasing competition: As a result of changes in the rules of industrial licensing and entry of foreign firms, competition for Indian firms has increased especially in service industries like telecommunications, airlines.
b)      More demanding customers: Customers today have become more demanding because they are well-informed. Increased competition in the market gives the customers wider choice in purchasing better quality of goods and services.
c)       Rapidly changing technological environment: Increased competition forces the firms to develop new ways to survive and grow in the market. New technologies make it possible to improve machines, process, products and services.
d)      Necessity for change: In a regulated environment of pre-1991 era, the firms could have relatively stable policies and practices. After 1991, the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations.
e)      Threat from MNC Massive entry of multi-nationals in Indian marker constitutes new challenge. The Indian subsidiaries of multi-nationals gained strategic advantage. Many of these companies could get limited support in technology from their foreign partners due to restrictions in ownerships. Once these restrictions have been limited to reasonable levels, there is increased technology transfer from the foreign partners
15. Explain five different off the job methods of training.            5
Ans: Methods of Job Training:
a)      Conferences/class room lectures: It is a highly structured way to convey a message or specific information with the help of audio-visual aids formal classroom sessions of training can be made more interesting.
b)      Vestibule School: Vestibule school means duplicate model of organization. Generally when the expensive and delicate machineries are involved then employers avoid using on-the-job methods of training. A dummy model of machinery is prepared and instead of using original machinery employees are trained on dummy model.
c)       Films: Showing films is also a very effective method in certain cases. Films can give important information on various techniques through demonstrative skill.
d)      Case Study: Under this method managers discuss real problems that they have faced and trainees are asked to give their suggestions and alternatives to solve that problem. Case study helps the trainees to decision under real work situation.
e)      Computer Modeling: Under this method a computer is programmed to show real problems of job and how to overcome such problems. In this method the employees can learn a lot without incurring much cost.
16. Give five reasons to support management as a profession.                  5
Ans: Management is a Profession: Profession is an occupation for which specialized skills and training are required and these skills are used not for private profit but for the larger interests of the society.  There is a professional body to control the behaviour of its members.  At present management is not a full fledged profession but it is heading towards becoming a profession.
Management is by and large becoming a profession. This can be seen by referring to the following emerging trends in business:
Ø  All big companies appoint professional managers at all levels.
Ø  Many Indian companies take initiative to replace family members by professional managers.
Ø  Proprietary managers are becoming more interested in acquiring latest knowledge and technique of management.
In conclusion, it may be said that managers at the top level do not satisfy all the requirements of profession but management is becoming a profession.
17. State five functions of Stock Exchange in India.                          5
Ans: As the barometer measures the atmospheric pressure, the stock exchange measures the growth of the economy. it performs the following vital functions:
a) Provides liquidity and marketability of securities: The stock exchange provides a market where the securities can be converted into cash and vice versa. The marketability of the existing securities takes place easily.
b) Pricing of securities; Stock exchange is a mechanism where the prices of the securities are determined by the forces of demand and supply of the securities.
c) Safety of transactions: The membership, operation of the stock exchange is regulated by SEBI through its protective and Regulatory functions. The listing of the securities is compulsory which protects the interests of the investors.
d) Contributes to Economic Growth: The stock exchange leads to capital formation and allocation of resources through the process of investment and disinvestment of the securities. As buying and selling of securities take place funds are available to the eligible companies and savings are channelised.

e) Provides scope for speculation: Speculation is a legal activity if it is performed within the regulations determined by SEBI. Healthy speculation is encouraged to ensure liquidity and price continuity in the stock market.
18. What is packaging? What are its functions?                 5
Ans: Packaging: It refers to the group of those activities which are related with the designing and production of the containers in which the product are packet.
Functions of Packaging
1. Product Identification: Packaging help in identification of the product.
2. Product Protection: The main function of the packing is to provide protection to the product from dirt, insect and breakage.
3. Convenience: It provides convenience in carriage, stocking and in consuming.
4. Product Promotion: Packaging simplifies the work of sales promotion.
19. What do you mean by delegation of authority? What are its elements? Why delegation of authority is considered essential in management?                          2+2+4=8
Ans: In every organisation managers are assigned lot of work and manager alone cannot perform all the work. So, he divides the work among different individuals working under his according to their qualification and gets the work done from them. After passing the responsibilities the manager also shares some of his authority with his subordinates. To make sure that his subordinates perform all works effectively and efficiently the manager creates accountability and this whole process is known as delegation of authority.
Elements of Delegation of Authority:                   
a)      Responsibility: Responsibility means assigning the work amongst subordinates. The process of delegation begins when manager divides his work among different individuals.
b)      Authority: Authority means power to take decision. To carry on the responsibilities every employee needs to have some authority, so, when managers are passing their responsibilities to the subordinates, they also pass some of the authority to the subordinates.
c)       Accountability: To make sure that his subordinates perform all works effectively and efficiently the manager creates accountability. Accountability means subordinates will be answerable for the non-completion of the task. It is the third and final step of delegation process.
Essentials of Delegation of Authority
Delegation of authority is necessary in all types of organizations. Reasons can be seen through the importance. The importance of delegation of authority may be outlined as follows:
a)      Reduced workload of managers: Delegation of authority permits a manager to share his workload with his subordinates. By passing on the routine work to the subordinates, the manager is able to concentrate on policy matters and decision-making. This would increase his effectiveness.
b)      Effective management: The manager who delegates’ authority can perform much more than the one who does not. This is because the manager can get some work done by his subordinates and is able to concentrate on policy matters and decision-making. This would increase his effectiveness.
c)       Motivation of employees: Delegation implies grant of authority to the subordinates along with responsibility for work. As a result, subordinates have a sense of recognition. They are motivated to work for higher performance.
d)      Employee development: As a result of delegation, employees get more opportunities to utilize their talent. It allows developing those skills which will improve their career prospects.
e)      Reduce the work load of managers: Managers can reduce their workload by sharing their responsibilities and work with the subordinates.
What are the steps in the process of organizing? State four points explaining the importance of organizing?   4+4=8
Ans: Meaning: Organising can be defined as “identifying and grouping different activities in the organisation and bringing together the physical, financial and human resources for the achievement of specific goal of organisation.
In the words of Henry Fayol, “To organise a business is to provide it with everything useful to its functioning: raw materials, machines and tools, capital and personnel”.
Steps in Organising:
a)      Identification and Division of Work: The first step in the process of organizing involves identifying and dividing the total work to be done into specific activities (called jobs) in accordance with previously determined plans. Such division of work into jobs is necessary because one individual cannot perform the entire work.
b)      Grouping jobs and Departmentalisation: The second step in organizing is to combine or group similar/related jobs into larger units called departments, divisions or sections. This grouping process is called “Departmentalisation”.
c)       Assignment of Duties: It is necessary to allocate work to various employees. Once departments have been formed, each of them is placed under the charge of an individual, called departmental head. Jobs are then allocated to the members of each department according to their skills and competencies.
d)      Establishing Reporting Relationships: Merely allocating work is not enough. Each individual should also know from whom he has to take orders and to whom he is accountable. The establishment of such reporting relationships helps in coordination amongst various departments.
The importance of organizing may be summaries as follows:
a)      Benefits of specialization: The activities are grouped very carefully into specialized jobs on the basis of similarity. Repetitive performance of a particular task leads to specialization.
b)      Clarity in working relationships: The jobs of managers and non managers are clearly defined & differentiated.
c)       Effective administration: Organising provides a clear description of a jobs and related duties. This helps to avoid confusion and duplication. Clarity in working relationship enables proper execution of work. This brings effectiveness in administration.
d)      Source of support and security improves job satisfaction: Organising is a source of support, security and satisfaction to managers and employees in performing their assigned tasks. In a sound organisation every individual is assigned the job for which he is best suited. The assignment of right jobs to right persons improves job satisfaction among the employees.
e)      Optimum utilization of resources: A sound organisation helps In the optimum utilization of technological and human resources by avoiding duplication of work and overlapping of efforts.
f)       Adaptation of change: The process of organizing allows a business enterprise to adapt itself according to changes in the business environment. It allows the organisation structure to be suitably modified and the revision of inter-relationships amongst managerial levels to pave the way for a smooth running of the business.

20. Explain Abraham Maslow’s theory on hierarchy of needs and mention the basic assumptions of the theory.  5+3=8
Ans: Understanding and influencing the human behaviour requires understanding their needs. Need or the desire is a very important element in motivation because the employees get motivated only for their needs and if the needs are fulfilled completely then it is not possible to motivate the employees. According to Abraham Maslow, need can be classified in the following categories:
a)      Physiological needs: these needs include basic requirements for survival and maintenance of human life. The common physiological needs are food, shelter and clothing.
b)      Security needs: Once the present day physiological needs are fulfilled then the people start thinking about their future as they want to secure their future by making sure that in future also they continue to satisfy their physiological needs. Under safety and security there are two categories:
Ø  Physical security which means safety from illness, accident, fire etc.
Ø  Economic security which means having sufficient funds to meet the future physiological needs and to come out of physical security threat.
c)       Social needs: It means the need for love, affection, companionship, friendship etc. Once the people satisfy their physiological and safety needs then the social need becomes more active and to fulfill the social needs.
d)      Esteem needs: These needs are related to the respect and recognition. When the above three needs are satisfied then people start demanding respect for themselves in a group. This need is more common in higher level employees.
e)      Self actualization: This need refers to realizing or reaching to the aim of your life. Once the employee becomes what he wants to become it means satisfaction of his actualization need. For example, need to grow, sense of fulfillment.
Assumptions of Maslow’s Need Hierarchy Theory
a) Behaviour of people depends upon their need. Human behaviour can be changed or motivated by fulfilling their needs.
b) Generally the needs follow the hierarchy i.e., starting from physiological need.
Outline the concept of leadership in management. What are the qualities of an ideal business leader?                     2+6=8
Ans: Leadership means influencing the behaviour of the people at work towards realising the specified goals.  It is the ability to use non-coercive (no force) influence on the motivation, activities and goals of others in order to achieve the objectives of the organisation.
Importance of Leadership:
a)      Guides and inspires employees: Leadership helps in guiding and inspiring employees to perform well and directs the potential abilities of the employees towards achieving the desired goals.
b)      Secures cooperation: Leadership secures cooperation of employees by persuading them to cooperate and work enthusiastically, confidently and diligently towards achieving the goals of the organisation.
c)       Creates confidence: By his exemplary conduct, a leader creates confidence, provides psychological support and infuses spirit of enthusiasm in the employees.
d)      Improves job satisfaction: Good working condition and support from managers in stressful situation brings job satisfaction to the employee. Managers are considered good only when they are able to motivate employees and provide them psychological support.
e)      Improves team spirit: The leadership helps in creating team-spirit by encouraging the employee to share common goal and work collectively.
Qualities of a Leader:
a)      Physical Qualities: Good physical features like height, weight, health and look of person attract an individual. Healthy and smart leader can work hard and also induce his subordinates to work hard.
b)      Judgement skills: A good leader should be able to examine problems in right perspective. His judgement and decision making abilities should be superior to others.
c)       Communication skills: A good leader should be able to communicate the goals and procedures of the organisation clearly, precisely and effectively to the subordinates.
d)      Integrity and honesty: A leader must possess high level of integrity and honesty. He must follow ethics and values then only he can expect his subordinate to be ethical and honest.
e)      Listening skills: People tend to avoid a leader who does not listen. Hence a good leader in one who can listen to other people’s problems.
f)       Initiative: A leader must take initiative to grab the opportunities. He must have courage and initiative to take bold decisions. He must take risk for the advantages of organisation.
21. Discuss four internal and external factors affecting capital structure decision of a company.     4+4=8
Ans: Capital structure refers to the mix of sources from where long term funds required by a business may be raised i.e. what should be the proportion of equity share capital, preference share capital, internal sources, debentures and other sources of funds in total amount of capital which an undertaking may raise for establishing its business. In simple words, capital structure means the proportion of debt and equity used for financing the operations of business and it is calculated by the following formula:             Capital structure = Debt/Equity.
Following factors are to be considered before determining capital structure.
1.       Cash flow position: If cash flow position of the company is sound, then debt can be raised and if cash flow is not sound debt should be avoided and it must employ more of equity in its capital.
2.       Interest coverage ratio: It is the ratio that expresses the number of times the Net profit before interest and tax covers the interest liabilities. Higher the ratio better is the position of the firm to raise debt.
3.       Control: Issue of Equity shares dilutes the control of the existing shareholders, whereas issue of debt does not as the debenture holders do not participate in the management. Thus if control is to be retained, equity should be avoided.
4.       Cost of debt: If firm can arrange borrowed fund at low rate of interest then it will prefer more of debt as compared to equity.
5.       Stock market conditions: If the stock market is bullish, the investors are adventurous and are ready to invest in risky securities. In this case, equity can be issued even at a premium. Whereas in the Bearish phase, when the investors become cautious, debt should be issued as there is a demand for fixed cost security.
6.       Regulatory framework: Before determining the capital structure of a company, the guidelines of SEBI and concerned regulatory authority is to be considered.
7.       Flexibility: Excess of debt may restrict the firm’s capacity to borrow further. To maintain flexibility it must maintain some borrowing power to take care of unforeseen circumstances.
8.       Tax rate: As interest on debt is treated as an expense, it is tax deductable. Dividend on equity is the distribution of profit so is not tax deductable. Thus if the tax rates are high, issue of debt is an attractive means as it is economical in nature.
What are the aspects of dividend decision? Explain six factors affecting dividend decision of a company.     2+6=8
Ans: Dividend Decision: This decision is concerned with distribution of surplus funds. The profit of the firm is distributed among various parties such as creditors, employees, shareholders, debenture holders etc. Under this decision the finance manager decided how much to be distributed in the form of dividend and how much to keep aside as retained earnings.
Factors affecting dividend decision: A firm's dividend policy is influenced by the large numbers of factors. Some factors affect the amount of dividend and some factors affect types of dividend. The following are the some major factors which influence the dividend policy of the firm.
1. Legal requirements: There is no legal compulsion on the part of a company to distribute dividend. However, there certain condition imposed by law regarding the way dividend is distributed.
2. Firm's liquidity position: Dividend payout is also affected by firm's liquidity position. In spite of sufficient retained earnings, the firm may not be able to pay cash dividend if the earnings are not held in cash.
3. Repayment need: A firm uses several forms of debt financing to meet its investment needs. These debts must be repaid at the maturity. If the firm has to retain its profits for the purpose of repaying debt, the dividend payment capacity reduces.
4. Expected rate of return: If a firm has relatively higher expected rate of return on the new investment, the firm prefers to retain the earnings for reinvestment rather than distributing cash dividend.
5. Stability of earning: If a firm has relatively stable earnings, it is more likely to pay relatively larger dividend than a firm with relatively fluctuating earnings.
6. Access to the capital market: If a firm has easy access to capital markets in raising additional financing, it does not require more retained earnings. So a firm's dividend payment capacity becomes high.
22. What is personal selling? State three advantages of personal-selling. How personal selling is helpful to the society?                2+3+3=8
Ans: Personal selling is the act of presenting of product or services so that the consumer appreciate the need for it and mutually satisfactory sales follows.
Advantages of Personal Selling: The strength of personal selling is measured in terms of the merits to its credit as a distinct form of promotion. These are:
1. Flexibility and adaptability: Personal selling by its very nature is capable of providing more flexibility, being adaptable. A salesman can adjust’ himself to the varying needs, moods, motives, impulses, attitudes and other behavioural variables of the prospects with a view to communicate effectively and effect the sales for the unit.
2. Minimum waste: The efforts put in by the salesman are highly focused on a single customer or a small group of customers. The message is likely to reach them without distortion and diffusion. This is perhaps the greatest merit in contrast to advertising where the ad message is released en-masse resulting in message diffusion and distortion causing more wastage or promotional efforts.
3. Acts as a feed-back: The salesman is, in effect, a researcher. Being in direct contact with the consumers, he has the advantage of collecting and transmitting the relevant market information affecting his company.
Limitations of Personal Selling: However, all is not well with process of personal selling. There are certain limitations which one should take into account before giving the conclusion as to its real worth.
1. It is expensive: Personal selling as a method of promotion is quite expensive. Getting salesman is one thing and retaining him for long is another. Further, there are no definite correlations between his stay and cost of retaining and the contributions of his, in return, to the firm, for such costs.
2. Difficulty of getting right kind of salesmen: Though, theoretically certain guidelines are prescribed for getting right kind of salesmen from the potential candidates, it is really very difficult to get suitable salesmen from company’s point of view. The potential salesmen so selected, trained and placed, do not guarantee loyal service to the company.
3. Stake in consumer loyalty: Personal selling is such a process-direct and close between the customer and salesman that the consumer loyalty depends on the presence of such a salesman. The firm’s fortunes are tied to the loyalty of consumers which, in turn, depends on the very presence of salesman. The moment the salesman moves out, the clientele drops down to the detriment of the firm.
Importance to Society: Personal selling brings following positive effects for society:
Ø  Converts Latest Demand into Effective Demand: Personal selling create effective demand which results in increasing sale and more income.
Ø  Employment Opportunities: Unemployed youth can work as salesman and earn their livelihood.
Ø  Career Opportunities: Personal selling offers attractive career with job satisfaction and security.
Ø  Mobility of Sales Persons: Sales people move from one place to other, this promotes travel and tourism industry.
Ø  Product Standardization: With the help of personal selling there can be uniformity of consumption by supplying standardized products.
State four components of physical-distribution. Why physical distribution is assuming greater importance day to day.       4+4=8
Ans: Decisions in Physical Distribution/Components of Physical Distribution: There are four major activities involved in physical distribution of goods. There are the four major decisions which management has to take while providing physical distribution service:
a)      Order Processing: Order processing means the time and steps involved between taking order from customer and delivery of goods as per order. There is direct relation between the time taken in order processing and satisfaction of customer. Fast order processing gives more satisfaction to customer but this involves cost of maintaining sufficient inventory etc.
b)      Transportation: Transportation means physical movement of goods from place of production to place where they are required. Transportation adds value to the goods by moving them to place where these are required for example, Tea plantation is done in Darjeeling, Gangtok, Assam etc. but these are transported all over the country and the value of tea is much higher in other parts of country as compared to the place of production. There are various means of transportation available i.e. Rail, Road, Air, Pipeline, Water transport etc.
c)       Warehousing: Whatever is produced is not sold off immediately. Therefore every company needs to store the finished goods until they are sold in the market. Storage of goods is necessary because some goods like crops are seasonal in production but are demanded throughout the year so these have to be stored for supplying throughout the year.
d)      Inventory: Inventory refers to maintenance of stock of goods. The inventory needs to be maintained so that goods can be supplied whenever demanded. The proper inventory maintenance ensures product availability. But inventory also involves costs. These include cost of capital blocked in and risk of price fluctuation.
Significance or Importance of Physical Distribution Management:
The physical distribution of goods has assumed great importance particularly in recent years, because of the ever increasing competition for markets. The importance of physical distribution lies in the following directions:
1. It Creates Utilities Of Time And Place: By making available a product at the place where and when it is needed.
2. It Accounts For A Major Portion Of Marketing Costs: According to one estimate, physical distribution costs constitute as much 60% of the total marketing cost. Physical distribution is a very important area for cost savings. Over the years, in most businesses, physical distribution costs have grown into a sizeable portion of the total costs. Surprisingly, physical distribution despite being an important cost area, has remained one of the neglected areas for cost reduction. 
3. Bigger Share in the National Wealth: It represents large share in the national wealth in the form of facilities—rail, road, trucks, highways, aircrafts, ship, docking facilities, pipelines, storage facilities and equipment.
4. Specialisation It Facilitates Geographic Specialization: Each area produces goods that its natural resources, climate or pool of manpower resources enable it to produce more efficiently.

5. Determines Standard Of Living: This is so because proper distribution of products makes them available to a large number of people, at a relatively lower cost. Thus it can be said that physical distribution directly affects sales, customer service and satisfaction, and costs.