Business Studies Solved Question Papers' 2012 | AHSEC Class 12 Business Studies Solved Question Papers

[Class 12 Business Studies Solved question Paper, AHSEC, 2012, 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) Name the book authored by Henry Fayol on Management.
Ans: General and Industrial Management
(b) Which principle of management promotes team spirit?
Ans: Esprit De Corps
(c) Which policy of govt. has moved India towards globalization?
Ans: Industrial Policy 1991.
(d) Mention one responsibility on consumer under consumer Protection Act.
Ans. Be aware about their right: Consumer must be aware of their own rights. 
(e) Which function of management is considered as the base of all other function?
Ans: It is controlling.
(f) Name the process concerned with searching for prospective candidates for various jobs in an organization.
Ans:  Recruitment
(g) Give any two benefit of training to the organization.
Ans: Benefits of Training:
1)      Helps in increasing productivity of workers and thus leads to increase in profit.
2)      Employs become more efficient in handling machine and thus chances of accidents are minimized.
(h) Name the techniques of control by which all operations are planned in advance in the form of budget.
Ans: Budgetary Control
(i)Ahmed wants to buy iron. As an aware customer, how can he be sure about the quality of iron?
Ans: Through “ISI” mark. “ISI” mark is used for electronic items.
(j) Which act aims at controlling production, supply and distribution of essential commodities? 
Ans: Essential Commodities Act, 1955.
2. Mr. Hazarika has retired as managing Director of a manufacturing company. At what level of management was he working? Write two functions at that level.
Ans: Top management is the 3rd line of management, which consists of Chairman, Directors, Managing Director, General Manager and other top-level executives required to achieve the goals of the enterprise. For example: Mr. Hazarika has retired as the managing director of a manufacturing company. He is said to be working at top level of management.
The functions of top management are:
a)      They determine both long term as well as short term objective of the enterprise.
b)      They formulate plans and policies to achieve the desired objectives.
3. Explain three importance of financial planning.   3
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. Explain three factors affecting the requirement of working capital.    3
Ans: Following factors are to be considered before determining the requirement of working capital.
1.       Scale of operations: There is a direct link between the scale of business and working capital. Larger business needs more working capital as compared to the small organizations.
2.       Nature of Business: The manufacturing organizations are required to purchase raw materials, convert them into finished goods, maintain the stock of raw materials; semi finished goods and finished goods before they are offered for sale. They have to block their capital for labour cost, material cost etc, so they need more working capital. In the trading firm processing is not performed. Sales are affected immediately after receiving goods for sale. Thus they do no block their capital and so needs less working capital.
3.       Credit allowed: If the inventory is sold only for cash, it requires less working capital as money is not blocked in debtors and bills receivable. But due to increased competition, credit is usually allowed. A liberal credit policy results in higher amount of debtors, so needs more working capital.
5. Give three distinctions between money market and capital market.     3
Ans: Difference between capital market and money market
Basis of  Distinction
Capital Market
Money Market
1)   Meaning
The market dealing in long-term funds is known as capital market.
The market dealing in short-term funds in known as money market.
2)   Constituents
These include new issue market, stock market, stock brokers and intermediaries.
These include call money market, bill market and discounting market.
3)   Participants
Individual and institutional investors operate in the capital market.
Only the institutional investors operate in the money market.
4)   Amount of funds
Capital market arranges large amount of funds.
Money market arranges comparatively small amount of funds.
5)      Regulation
Capital market is primarily regulated by the Securities and Exchange Board of India (SEBI)
Money market is regulated by the Reserve Bank of India (RBI)
6. Explain three models of sales promotion.     3
Ans: (a) Rebate: - Sometimes, the product is made available at special prices less than the original prices for a limited period of time, e.g., recently Coke and Pepsi announced special price of their 500 ml bottles.
(b) Product Combination: - Product combination is the bonus items given free with the purchase of a product. For e.g. A milk shakers along with Nescafe, or mugs with Bourn vita or a diary along with a packet of chips. They are effective in getting consumers to try a new product.
(c ) Lucky Draw:- A firm of purchased of a fixed amount gives a coupon to a customer which entitles them for a lucky draw, e.g., Bikanerwala restaurant in particular season gives lucky draw coupon on purchase of Rs. 200 or more to its customers which entitles them to win exciting prizes like car etc.
7.  “Management is considered as an art or a science or both.” Elucidate the statement.    4
Ans: Management As a Science: Science is defined as a systematized body of knowledge and it uses scientific methods of observation measurement, experimentation etc.  Its principles are exact and university applicable. Similarly, Management has systematized body of knowledge and its principles are evolved on the basis of observation. But management being a social science, it is not an exact science.  So management is a soft or inexact science.
Management As an Art: Art refers to the way of doing specific things i.e. it indicates “how an objective is to be achieved.  it is the know-how to achieve the desired results.  Art needs continuous practice to reach the level of perfection.  An art is application of science. Thus art and science are interrelated in the sense that putting scientific principles into practice requires art, which needs special knowledge and skills.
Management is both a science as well as an art.  The science of management provides certain principles that can guide managers in the professional efforts, while the art of management deals with tackling every situation in an effective manner.  Planning and organizing emphasize the science of management while direction, communication motivation coordination and control emphasize art of management.  Getting work done through people is an art of management.
8. How does social and technological influence the working of a business?    4
Ans: Social Environment: The social environment of business includes social factors like customs, traditions, values, beliefs, poverty, literacy, life expectancy rate etc. The businessman cannot overlook the components of social environment of social environment as these components may not have immediate impact on the business but in the long run the social environment has great impact on the business.
Technological Environment: Technological environment include the methods, techniques and approaches adopted for production of goods and services and its distribution. In the modern competitive age, the pace of technological changes is very fast. Hence, in order to survive and grow in the market, a business has to adopt the technological changes from time to time.
9. Distinguish between functional structure and divisional structure on the basis of:                 4
(a)  Formation
(b) Management development
(c)  Suitability
Ans: Difference between functional structure and divisional structure
Functional Structure
Divisional Structure
The functional structure is one such structure, in which the activities of similar nature are grouped together.
Divisional Structure is defined as an organisational structure that clubs together various functions on the basis of product lines and regional divisions.
Management Development
Managerial development is not easy in functional structure due to the absence of autonomy of decisions, as the decisions are guided by top management.
As against this, divisional structure there exists autonomy of decisions. Hence managerial development is easier.

It is suitable for small and simple organisations.
It is suitable for large and dynamic organisations.
It is economical, as the functions are not repeated.
It is expensive as it involves repeatation of resources.
10. Discuss four elements of directing.     4
Ans: Four Elements of directing are Supervision, leadership, Motivation and communication:
a)      Supervision means instructing, guiding, monitoring and observing the employees while they are performing jobs in the organisation. The word supervision is the combination of two words i.e., super+vision where super means over and above and vision means seeing.
b)      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.
c)       Motivation is a process of stimulating people to action to achieve desired goal. It is psychological term. It comes automatically from inside the employees as it is the willingness to do the work.
d)      Communication means exchange of messages between two or more persons. These messages could mean idea, opinions, facts, information, instructions and anything that conveys a meaning. These may be conveyed in words, pictures, and actions or gestures.
In the words of Newman, Summer & Warren, “communication is an exchange of facts, ideas, and opinions by two or more persons.”
11.  State any four right of a consumer.      4
Ans: Rights of Consumers:
a)      The right to safety: It refers to the right to be protected against products which are hazardous to health or life.
b)      The right to be informed: Consumers have a right to be informed about the quality, quantity and price of goods or services so that they can make the right decision.
c)       The right of choice: The consumer has the right to be assured of a choice of various goods and services of satisfactory quality and competitive price.
d)      Right to representation (or right to be heard): It is a right and the responsibility of civil society to ensure consumer interest prevails while formulating and executing policies which affect the consumers, as well as right to be heard while developing or producing a product or service.
12. Discuss the technique of scientific management.   5
Ans: The Techniques of scientific management are:
a) 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.                                              
b) Method study: It refers to identify the most suitable, economical way of doing a particular activity. To conduct this study, process chart, operation research technique can be used. The main objective is to minimize the cost of production and maximize the quality of the work.
c) Motion Study: Motion study is designed to eliminate unnecessary motions and to reinforce necessary motions. It is a close observation of analyzing the body movements of the worker performing the job. This study helps in analyzing that if any element of the job can be eliminated or not.
d) Time study: This study helps in determining the time required by an average skill worker to efficiently perform a particular job. Time study helps in determining the standard time for the job. This standard time is then fixed for the workers for performing the job. So, time study is used to measure precisely the time required in doing every element of a job with the purpose of deciding the fair day’s work.
e) Mental Revolution: Taylor emphasized the mutual cooperation between the workers and the management as the human element comprising of worker and management is essentially a very sensitive factor of production. The basic idea behind the mental revolution is to change the mental attitude of the workers and the management towards each other. Mental revolution requires that there should be perfect cooperation and coordination between the efforts of labour and the management.
f) Functional foremanship: In this technique Taylor suggested the division of factory in two departments: planning department and production department as Taylor felt that workers must be free from the burden of planning and they must concentrate on work and production.
Discuss five principle of management evolved by Henry Fayol.
Ans:   Different management experts have explained different principles on the basis of their research. Henry Fayol, a famous industrialist of France, has described fourteen principles of management in his book General and Industrial Management.
While presenting the principles of management Fayol has kept two things in mind. Firstly, the list of the principles of management should not be long but should be suggestive and only those principles should be explained which become applicable in most of the situations. Secondly, the principles of management should be flexible and not rigid so that changes can be made in them in case of need.
Fayol suggested the following 14 principles:
1.       Division of work: Division of work is important for reducing work burden of an employee and improves his skills. This helps an individual to get specialization in his area of expertise. This helps to increase the productivity of an individual.
2.       Authority and Responsibility: Authority is the right to issue command and make decisions. Responsibility is obligation towards organization and decisions made. There must be balance in authority and responsibility. If there is no authority, he cannot fulfill his responsibility and if an individual has an authority he must have equal responsibility.
3.       Discipline: Discipline is important for the success of an organization. There must be good employee-employer relationship. Employees must obey orders and employer must provide good leadership.
4.       Subordination of individual interests to the general interest: The interests of any one employee or group of employees should not take precedence over the interests of the organization as a whole.
5.       Remuneration: Fair wage for the service is important. Every worker should be paid fair remuneration.
13. Explain the steps involved in planning process.    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.
Explain any five objectives of SEBI.
Ans: Objectives of SEBI
                a) To regulate stock exchanges and the securities industry and to promote their orderly functioning.
b) To protect the rights and interests of the Investors.
c) To prevent unfair trade activities/ trading malpractices.
d) To regulate and develop a code of conduct for intermediaries such as brokers, agents etc.
e) To Regulate Mutual fund agencies and collective Investment schemes.
14. “Control is considered important for many reasons.” Explain any five such reasons.     5
Ans: A good control system helps an organization in the following ways:
(i) Accomplishing organizational goals: The controlling function measures progress towards the organizational goals and brings to light the deviations, if any, and indicates corrective action.
(ii) Making efficient use of resources: By exercising control, a manager seeks to reduce wastage and spoilage of resources. This ensures that resources are used in the most effective and efficient manner.
(iii) Improving employee motivation: A good control system ensures that employees know well in advance what they are expected to do and what are the standards of performance on the basis of which they will be appreciated.
(iv) Ensuring order and discipline: Controlling creates an atmosphere of order and discipline in the organization. It helps to minimize dishonest behaviors on the part of the employees by keeping a close check on their activities.
(v) Facilitating coordination in action: Controlling provides direction to all activities and efforts for achieving organizational goals.
15. Discuss in brief, any five function of stock exchange.    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.
Explain any five objectives of management.                      5
Ans:  The two main objective of the business are economic objectives, social objectives and personal objectives which are given below:
Economic Objectives:
a) Obtaining maximum output with minimum input:  A successful management must achieve the objectives of the business by making optimum utilization of available resources effectively.
b) Improving efficiency: The management should try to develop and improve the efficiency of the factors of production. Increased productivity of the resources will result in excellent performance.
Social Objectives:
a)      Maximum employer’s and employees’ prosperity: Every management should make sincere efforts to earn maximum profit for the enterprise. It is equally important that the management should pay fair, reasonable and competitive remuneration to employees.

b)      Social justice and human betterment: An effective management brings prosperity for employers and employees. Excellent remuneration improves the standard of living of workers. The growth of business generates employment opportunities.
Personal or individual objectives: These objectives are related to the employees of the organisation. The main individual objectives of management are competitive salary, personal growth and development, good and healthy working competition and social recognition.
16. Explain, in brief, the factors that are taken into consideration while taking decision on pricing the product.      5
Ans: It refers to all those decisions which are concerned with the price fixation of any product or service. Factors determining Fixation of price:-
a)      Cost of the product: Cost of the product is the main component of the price. No company can sell its product or service at less than the cost of the product. A Fixed and variable cost are to be considered for determining the price.
b)      The utility and demand for the product: Intensive study for the demand for product and service in the market is to be undertaken before the fixation of the price of the product. If demand is relatively more than supply, higher price can be fixed.
c)       Extent of competition in the market: It is necessary to take into consideration prices of the product of the competing firms prior to fixing the price. In case of cut throat competition it is desirable to keep price low.
d)      Government & Legal Regulation: If the price of the commodity and service is to be fixed as per the regulation of the govt., it should also be borne in mind.
e)      Pricing objective: Usually at the time of price fixation a certain amount of profit is added to the cost of the product. Objective is to earn higher profit, it may it may add amount of it.
f)       Marketing method used: Price also influenced by the marketing method used by the company. Example – Commission which is to be paid to the middlemen for the sale of the goods is also added to the price.
What is motivation? Explain its importance in business.
Ans: Motivation is a process of stimulating people to action to achieve desired goal. It is psychological term. It comes automatically from inside the employees as it is the willingness to do the work. Importance of motivation within organisation is given below:
a)      Motivation sets in motion the action of people: Motivation bridges the gap between the ability to work and willingness to work. It enables the management to secure the best utilization of physical and financial resources.
b)      Motivation improves the efficiency of work performance: As motivation builds the willingness to work among the employees, the persons work with imitativeness thereby increasing their work performance.
c)       Motivation leads to stability in the employees: Motivation helps in reducing the labor turnover and absenteeism. It creates confidence among the employees and secures their loyalty to the organization.
d)      Helps in achieving the organisational goals: The motivated employees always try to achieve the organisational goal and contribute their best efforts for the realisation of organisational goals.
e)      Motivation held the managers to introduce changes: Motivated employees are always supportive and co-operative in accepting changes in the organisation.
17.  “Delegation of authority is necessary in all types of organization.” Give reasons in support of your answer.     6
Ans. 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.
Explain the terms “authority” and “responsibility” and “accountability”
Ans: Responsibility: Responsibility means assigning the work amongst subordinates. The process of delegation begins when manager divides his work among different individuals.
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.
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.
18. Explain the various steps involve in staffing process?
Ans: Steps involved in Staffing Process:
1)      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.                     
2)      Recruitment: After man power planning, the manager tries that more and more people should apply for the job so that the org. can get more choice and select better candidates.
3)      Placement and Orientation: Placement refers to placing the right person on the right job for which he is selected. Orientation refers to introducing the new employees with the existing employees.
4)      Selection refers to choosing the most suitable candidate to fill the vacant job position. It is a negative process because a number of candidates are rejected under it.
5)      Training and Development: The process of training helps to improve the job knowledge and skill of the employees. Training and Development not only motivate the employees but these improve efficiency of work also.
6)      Performance Appraisal: At this step the capability of the employees is judged and for that his actual work performance is compared with the work assigned to him. Performance and career planning: It is a process through which employees get better salary, status, position and also get promotion to higher post.
7)      Compensation: For deciding the compensation the works are evaluated. Compensation must be reasonable and related with the work.
What is meant by recruitment? Explain any four source of recruitment.     2+4=6
Ans: Recruitment is a process of inducing the people to apply for the job in the organisation. The basic purpose of recruitment is to create a large pool of applicants for the jobs. Recruitment is restricted to the extent of receipt of application. It is a positive process.
There are mainly two sources of recruitment:
a)      Internal Source: Under internal source of recruitment, the vacant job positions are filled by using existing employees of the organisation and no outsiders are permitted in internal source.
b)      External Source: When the candidates from outside the organisation are invited to fill the vacant job position then it is known as external recruitment. Whenever large numbers of job positions are vacant then external recruitment is preferred.
Methods of recruitment under internal source:
a)      Transfer: Transfer means shifting of employees from one job to another at the same level of authority. Generally with the transfers there is no change in the rank, responsibilities and prestige. Only the place of working is changed.
b)      Promotion: Promotion refers to shifting of employees from one job position to other with higher level of authority. In promotion the authority level, the rank, responsibilities and prestige improve or increase. Generally with the promotions there is increase in salary also.
c)       Present Employees: The present employees of an enterprise may be informed about likely vacant position. The employees recommend their relations or persons intimately known to them. Management is relieved of botheration for looking out prospective candidates. The persons recommended by the employees will be suitable for the job because they know the needs & requirement of various positions.
Methods of External sources of recruitment are:
a)      Direct Recruitment: Sometimes the organisations paste notice at the gate of their factory or workshop stating the vacant job positions. The people who are interested in those jobs walk in for interview. This method of external recruitment is called direct recruitment.
b)      Advertising on Television: A new trend of external recruitment is telecast on various channels regarding vacant job position. They telecast the requirement of the job along with the required qualification.
c)       Employment Exchange: Employment exchange act as middlemen between the job-seekers and the organisations who have vacant job positions. The candidates leave their bio-data and details of their qualifications with the employment exchanges and when the organisations approach employment exchanges for suitable candidates.
d)      Placement agencies and Management consultant: Placement agencies provide nation-wide service of matching demand and supply of work force. These agencies invite the bio data and record from various job seekers and send them to suitable clients.
e)      Web Publishing: In internet there are certain websites such as and provides information regarding job seekers and companies which have vacant job position.
19. What is meant by capital structure? What are the factors to be kept in mind while determining the capital structure of a company?   2+4=6
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.
“The dividend decision of a company is determined by a number of factors.” Discuss any six such factors.
Ans. 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.
20. Define leadership and bring out its four importance to an organization. 2+4=6
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.
What is meant by communication? Explain its four importance.
Ans: Communication means exchange of messages between two or more persons. These messages could mean idea, opinions, facts, information, instructions and anything that conveys a meaning. These may be conveyed in words, pictures, and actions or gestures.
In the words of Newman, Summer & Warren, “communication is an exchange of facts, ideas, and opinions by two or more persons.”
According to Keith Davis, “Communication is the process of passing information and understanding from one person to another.”
Communication is a process of understanding between the persons through exchange of ideas, messages, suggestions etc. It is important due to the following reasons:
a) It facilitates Planning: Participation of all the executives in planning is a pre requisite for getting the task done. This participation is possible only when the managers and employees interact with each other.
b) It helps in decision making. Most of the decisions are taken up by the top level management. But for decision making, right type of information is required from different persons. It is through communication that managers can identify the problems which help in taking the decisions effectively.
c) It helps in the process of motivation: Sharing of the information with the subordinate gains their confidence and willing cooperation. It increases their morale of doing work.
d) It is a basis of effective leadership: A good communicator is a good leader. Through good communication skill, the manager comes closer to his subordinates and removes the misunderstanding. Thus it is the basis of leadership.
e) Helps in smooth working of an enterprise: Smooth working of an enterprise is possible only when there is no communication gap. Through communication managers give directions for smooth functioning of organisation.
21. Define marketing. Discuss four elements of marketing mix.
Ans: Marketing mix prefers to one of the major concept in modern marketing according Philip Kotler “marketing mix is a set of controllable marketing variables that the firm blends to produce the response it wants in the target market”.
It is the combination of four controllable variables which constitutes the company’s marketing system. The four controllable variables are:
Ø  Product
Ø  Price
Ø  Promotion
Ø  Place
These elements are inter related and inter dependent since decisions in one area usually actions in other area.
4 P’s of Marketing Mix:
1) Product mix: Product is the starting point of all marketing activities. The product mix has the following dimensions: a) Product innovation and invention. b) Product features i.e., shape, size, weight, design, color, quality, standard etc. c) Product planning and development. d) Product range and mix etc.
2) Price mix: Price in decision is important from the point of view of the producer, consumer and seller. The product mix has the following dimension: a) Pricing policies b) Cost of production and profit margin c) Determination of per unit price. d) Discount, rebates and level of margins etc.
3) Promotion mix: Promotion means communication with customers to stimulate them to buy goods. The nature of promotion mix is determined by the marketing environment. There are various dimensions of promotion mix are: a) Advertising and publicity b) Personal selling techniques c) Sales promotion measures d) Public relation techniques etc.
4) Place mix: - place mix is also known as distribution mix. It is concerned with making the goods available to the customers at the places through a chain of marketing channels such as whole sellers, retailer’s middlemen and agents. The place mix has the following directions:  a) Type of intermediaries. b) Different marketing channels c) Physical distribution system etc.
Explain any six important functions of marketing.     6
Ans: Functions of Marketing / Marketing activities
a)      Marketing research : It means application of resource of research process in solving the marketing problem. Gathering and analysing marketing information i.e. what the customers want to buy, when they are likely to buy in what quantities do they buy, from where do they buy etc.
b)      Marketing planning: Specific plan for increasing the level of production, promotion of the products etc and specify the action programmes to achieve these objectives.
c)       Product designing and development; Marketer must take decision like, what-product? Which model / size? Brand name? Packaged? Quality level? So that customer needs are satisfied.
d)      Buying & assembling: e.g. car. Raw material like steel, tyres, batteries, seats, stearing wheels etc are bought & then assembled in the form of a complete product.
e)      Packing / labeling: Packaging is defined as a set of tasks or activities which is concerned with the design and production of an appropriate container for the product. A label identity is the product or brand. Labels are attached one to the product package to help the identification and provide some identity to the customer.
f)       Branding: Creating a distinct identity of the product from that of competitors e.g. Videocon washing machine.
State two features of advertising and mention four services rendered by it to consumers.      2+4=6
Ans: Features of Advertising:
a)      Non-personal presentation: Advertising is a non-personal presentation. Whatever the form of presentation, advertising is always directed to a mass audience rather than to any individual. At time:, e advertising message may give the impression of a personal appeal. However, all the sensations are non-personal in nature.
b)      Paid form: Advertising is always a paid form of communication and hence commercial in nature. Thus, advertising can clarify be distinguished from publicity which is not paid for by the sponsor.
c)       Identified sponsor: Advertising always has an identified sponsor. In other words, advertising discloses or identifies the source of the opinions and ideas it presents. On the other hand, the sponsor for publicity or propaganda can remain anonymous.
Services of Advertising to consumers:
Advertisements play a very important role in offering innumerable benefits to the manufacturers, customers and to the society in general. Main benefits of advertising to consumer are as follows:
a)      The manufacturer is compelled to maintain the quality of the goods advertised. Money spent on advertising being an investment the manu­facturer naturally expects returns on such investment
b)      Advertising also acts as an information service and educates the con­sumer. It enables him to know exactly what he wants and where to get it.
c)       Advertising stimulates production and reduces the cost per unit. This reduction in the cost is generally passed on to the consumer and that is why price of well-advertised goods are found to be generally lower than other goods of the same quality which are not so well advertised.
d)      Advertising also makes it possible to sell direct to the consumer by Mail Order Business.
22. Clarify the meaning of the terms “entrepreneur”, “entrepreneurship” and “enterprise”.    3
23. Describe three function of an entrepreneur in relation to economic development.     3

Describe the process of entrepreneurship development.