CBSE Sample Papers for Class 12 Business Studies Paper 4

CBSE Sample Papers for Class 12 Business Studies Paper 4 are part of CBSE Sample Papers for Class 12 Business Studies Here we have given CBSE Sample Papers for Class 12 Business Studies Paper 4.

CBSE Sample Papers for Class 12 Business Studies Paper 4

Students who are going to appear for CBSE Class 12 Examinations are advised to practice the CBSE sample papers given here which is designed as per the latest Syllabus and marking scheme as prescribed by the CBSE is given here. Paper 4 of Solved CBSE Sample Papers for Class 12 Business Studies is given below with free PDF download solutions.

Time: 3 Hours
Maximum Marks: 80

General Instructions

(i) Answer to questions carrying 1 mark may be from one word to one sentence.
(ii) Answer to questions carrying 3 marks may have about 50 to 75 words.
(iii) Answer to questions carrying 4 – 5 marks may have about 150 words.
(iv) Answer to questions carrying 6 marks may have about 200 words.
(v) Attempt all the parts of a question together.

Questions

Question 1:
What did Taylor want to communicate through mental revolution ?

Question 2:
What is meant by demonetisation ?

Question 3:
Super Fine Rice Ltd. has the largest share of 55% in the market. The company’s policy is to sell only for cash. In 2015, for the first time company’s number one position in the industry has been threatened because other companies started selling rice on credit also. But the managers of Super Fine Rice Ltd. continued to rely on its previously tried and tested successful plans which didn’t work because the environment is not static. This led to decline in sales of Super Fine Rice Ltd. ,

Question 4:
Why is it said that directing takes place where ever superior-subordinate relationship exists ?

Question 5:
When is financial leverage favourable ?

Question 6:
ABC Ltd. issued prospectus for the subscription of its shares for ₹500 crores in 2008. The issue was oversubscribed by 20 times. The company issued shares to all the applicants on pro – rata basis. Later SEBI inspected the prospectus and found some misleading statement about the management of the company in it. SEBI imposed a penalty of ₹5 crores and banned its three executive directors for dealing in securities market for three years.
Identify the function and its type performed by SEBI in the above case.

Question 7:
Ronit Raj, a marketing manager is a patient of diabetes for which he takes medicines regularly. One day, on his tour to Patna, he met with an accident and was hospitalised. Due to doctors’ negligence a delicate nerve of his right leg was cut rendering him crippled throughout his life. Identify the consumer right that has been violated by the doctors under the Consumer Protection Act, 1986 in the above situation.

Question 8:
Sirajuddin purchased a car for ? 15 lacs from an automobile company and found that its airbags were defective. After many complaints with the company that went unheard, he filed a case in the District Forum. He was not satisfied with the orders of the District Forum. He then appealed before the State Commission and on being dissatisfied with the orders of State Commission, he appealed before the National Commission. Sirajuddin was not satisfied with the orders of National Commission.
Suggest him the highest authority where he could appeal against the decision of the National Commission.

Question 9:
State the main aspects in the concept of planning.

Question 10:
How does controlling help in “Judging accuracy of standards” and “Ensuring order ’ and discipline”.

Question 11:
M/s Beta Ltd. deals in consumer goods. It employs 100 workers and 10 operative managers who give guidance and support to the workers while operating the machinery. The company has a policy of granting leave as per the requirement of the workers. Workers are generally granted leave on festivals and special occasions. Recently on Puja festival, it received a big order. Workers are keen to take Puja holidays while management is pressing hard for overtime. This matter was placed before the Personnel Manager who called the meeting of operative managers and workers to inform them about the changes in the incentive plan which states payment of double wages for working overtime and triple wages for working on holidays. Workers without any pressure voluntarily took limited holidays and were able to increase their earning by working overtime and on holidays. During Board of Directors meeting, Personnel Manager was asked to update the management for achieving higher output, meeting timely supplies without any confrontation with workers. Personnel Manager replied, “I just used a carrot with no sticks approach”.
By quoting the lines from above paragraph state any two elements of directing.

Question 12:
‘Money market is essentially a market for short-term funds/ In the light of this statement, state any three features of money market.

Question 13:
‘Grahak Shakti’, an NGO organised a workshop to discuss various issues relating to consumers. During the discussion, one of the members drew attention towards exploitation of consumers due to defective and unsafe products, adulteration, black marketing, hoarding etc. To this another member argued that consumers themselves are responsible as they do not raise collective voice against the exploitation. The Chairperson of the organisation was of the opinion that it was also the duty of the businessman to take care of the interests of various stakeholders. Business organisations earn money by selling goods and services to consumers. So the interests of the stakeholders have to be well taken care of.
State three points that highlight the need for consumer protection as discussed in ‘Grahak Shakti’s workshop’.

Question 14:
State any four functions of operational management.

Question 15:
Ramdas, aged 49 is working in an aviation company. He is the senior most employee in his division. He is even senior to the division manager, Kanaputti. Ramdas is considered one of the most committed, capable and hard-working employees. As a result of his abilities and seniority, he generally received the work assignments of his choice. Although there was no formal designation of various ‘special’ projects assigned to Ramdas, he handled them as a matter of routine. A problem developed when an able and intelligent person Nagarjuna, aged 33, was appointed by Kanaputti. Nagarjun’s previous three years’ experience in the closely related work, made it possible for him to catch on to the routine work of his new job more rapidly than was customary for a new employee. On several occasions, Kanaputti noticed the tension developing between the two employees. However, he didn’t want to get involved in their personal issues as long as the work was completed effectively and efficiently by them. One day, the tension between them reached the boiling point and Ramdas complained to Kanaputti stating that’his duties were being largely taken over by Nagarjun. Kanaputti issued the order stating the clear allocation of the jobs and related duties between the two. He further clarified the working relationship between them by specifying who was to report to whom. This helped in reducing the workload, enhancing productivity and removing ambiguity.

1.  Identify and state the step of organising process which has not been carried out properly and contributed to this problem.
2. State the two steps of the organising process which have been taken by Kanaputti to respond to the complaint of Ramdas.
3. Also state two points of importance of organising as reflected in the above case.

Question 16:
Human Resource Management includes many specialised activities and duties which the human resource personnel must perform. In the light of this statement, explain any four such duties performed by Human Resource Manager.

Question 17:
Resolutions Pvt. Ltd. is a publishing company. Its book on Business Studies for Class XII is in great demand. As a result, the employees in the marketing department are always racing against time. The employees have to work overtime and on holidays to cater to the demand.
Managers in the marketing department are under stress as they have to handle more than two territories* The work stress has led to dissatisfaction among the employees and managers.

1. Name and explain the step of staffing process which has not been performed properly.
2. State the next two stages immediately following the step identified in part

Question 18:
‘Unicon Securities Pvt. Ltd/ was established to deal in securities. It was registered as a stock broker with National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) to trade in securities listed at these exchanges. It is also a depository participant with CDSL and NSDL. In the first three years, it developed its business successfully. After that the composition of Board of Directors changed. Some customers complained to the customer care centre of the company that shares purchased by them and for which the payment has been duly made, were not
transferred to their D’mat Accounts by ‘Unicon Securities Pvt. Ltd/ The executive of customer care centre promised the aggrieved customers that their shares will be transferred to their respective D’mat Accounts very soon. But the company delayed the matter and didn’t transfer the shares of the customers to their D’mat Accounts. This eroded investors’ confidence and multiplied their grievances.

1. Identify the step of trading procedure in a stock exchange which has not been followed by ‘Unicon Securities Pvt. Ltd.’
2. Name the Apex statutory body of capital market to whom customers can complain to
   redress their grievances.
3. Write any two objectives of SEBI other than protecting the investors.

Question 19:
‘Time Line’ watch manufacturing company is a renowned company marketing watches. It performs various activities like, market analysis, product designing or merchandising, packaging, warehousing, branding, pricing, promotion and selling. The company maintains good customer relations through various follow up activities. This helps the company in procuring repeat sales orders.

1. Name the concept related to the activities mentioned in the above paragraph.
2. Explain any two features of the concept identified in part (1).

Question 20:
Naman and Govind after finishing their graduation under vocational stream decided to start their own travel agency which will book Rail Tickets and Air Tickets on commission ‘ basis. They also thought of providing tickets within ten minutes through the use of internet.
They discussed the idea with their Professor Mr. Mehta who liked the idea and suggested them to first analyse the business environment which consists of investors, competitors and other forces like social, political etc, that may affect their business directly or indirectly. He further
told them about the technological improvements and shifts in consumer preferences that were taking place and hence they should be aware of the environmental trends and changes which may hinder their business performance. He emphasised on making plans keeping in mind the threat posed by the competitors, so that they can deal with the situation effectively. This alignment of business operations with the business environment will result in better performance.

1. Identify and state the component of business environment highlighted in the above
   para.
2. State any two features of business environment as discussed by Professor Mehta with Naman and Govind.
3.  Also state two points of importance of business environment as stated by Professor Mehta in the above situation.

Question 21:
‘Shan Spices Ltd/ are the manufacturer of different food specific spices like Rajmaa Masala, Chholey Masala, Aaloo Parantha Masala etc. Mr Raghav, the owner of the company has created different departments for purchase, production, marketing, finance and human resource. There are thirty employees working in the organisation. Planning is of paramount importance to the company as Mr Raghav believes that effective planning leads to achievement of organisational objectives. So in order to make employees focus on objectives, he issued instructions that during working hours only official matters will be discussed. He made certain rules and code of conduct for the employees to follow, according to which employees are not allowed to visit and talk to the employees of other departments except for official work. He emphasised on work performance which resulted in smooth functioning of the organisation.

1.  Identify and state the type of organisation mentioned in the above para.
2.  State any two features of the concept identified in part (1) as mentioned in the above para.
3. What was the purpose behind the formulation of rules for the employees that restricted their personal communication with the employees of other departments ?

Question 22:
Describe briefly ‘Maslow’s need hierarchy theory’ of motivation.

Question 23:
Briefly explain work study techniques that help in developing standards to be followed throughout the organisation.

Question 24:
‘A business that doesn’t grow dies’, says Mr. Shah, the owner of Shah Marble Ltd. with glorious 36 months of its grand success having a capital base of ₹ 80 crores. Within a short span of time, the company could generate cash flow which not only covered fixed cash payment obligations but also create sufficient buffer. The company is on the growth path and a new breed of consumers is eager to buy the Italian marble sold by Shah Marble Ltd.

To meet the increasing demand, Mr. Shah decided to expand his business by acquiring a mine. This required an investment of ₹ 120 crores. To seek advice in this matter, he called his financial advisor Mr. Seth who advised him about the judicious mix of Equity (40%) and Debt (60%). Mr. Seth also suggested him to take loan from a financial institution as the cost of raising funds from financial institutions is low. Though this will increase the financial risk but will also raise the return to equity shareholders. He also apprised him that issue of debt will not dilute the control of equity shareholders. At the same time, the interest on loan is a tax deductible expense for computation of tax liability.
After due deliberations with Mr. Seth, Mr. Shah decided to raise funds from a financial institution.

(a) Identify and explain the concept of Financial Management as advised by Mr. Seth in the above situation.
(b) State the four factors affecting the concept as identified in part (a) above which have been discussed between Mr. Shah and Mr. Seth.

Question 25:
‘Coconut Joy Ltd/ are the manufacturer of vegetarian frozen dessert food products made with coconut milk, agave syrup and other certified ingredients. The founders of the company Lovely and Lalita originally developed this treat to meet their own needs but found that their friends and families around were also keen to use the products. It was not only the vegetarians/ but also those who could not get enough environment friendly sustainable food, that appreciated the product.
It did not take long for Lovely and Lalita to recognise the potential of their little venture. In the beginning they started from their home with the product being sold through local family parties that enable guests to personally meet the owner. This helped to establish strong connections with the prospective buyers and the company could put the product on shelves of natural food store. The company used all marketing activities to grow and expand. The company began sponsoring booths at festivals, drawing attention to its newly created vegetarian products. It also disseminated relevant information to media about its products and the people who helped in building the company’s reputation. Lovely and Lalita were invited for an interview with one of the leading TV channels in which they talked about their environment friendly vegetarian products. To show its gratitude to customers, local business and government officials who supported the company from the beginning, ‘Coconut Joy Ltd.’ hosted a gala event and involved all of them to raise funds for a few local NGO’s. The company also asked its fans and customers to send songs and poetry conveying their impression about ‘Coconut Joy’s Ltd.’ products.

(a) Identify and explain the communication tool used by ‘Coconut Joy Ltd.’
(b) Briefly explain the role of the tool identified in (a) above.

Answers

Answer 1:
Through mental revolution, Taylor wanted to communicate that there should be a complete transformation in the attitude of workers and management towards each other and they should work together for organisational goals.

Answer 2:
Demonetisation means an economic policy of the government under which a specified currency note ceases to be a legal tender.

Answer 3:
Following are two limitations of planning given in the paragraph :

1. Planning does not guarantee success.
2. Planning may not work in dynamic environment.

Answer 4:
Directing takes place wherever superior-subordinate relationship exists. It is so because directing is pervasive and is required at every level.

Answer 5:
Financial leverage is favourable if return on investment (Rol) is more than the cost of debt.

Answer 6:
The function performed by SEBI is protective function and the type of function is l, prohibition of fraudulent and unfair trade practices.

Answer 7:
It is the right to safety that has been violated by the doctors.

Answer 8:
Sirajuddin cannot appeal to any other higher authority. Following two matters are appealable before Supreme Sourt:

1. Masters directly filed in the National Commission.
2. Matters involving the value of goods and services exceed ₹1 crore.

Answer 9:
Following are the main aspects in the concept of planning :

1. Setting objectives – The first aspect of planning is the setting up of objectives for a given time period. There should be clear-cut objectives as a whole as well as for each department thereof. Objectives must be capable of being achieved in future.
2. Listing the alternatives – Generally, there are various courses of action to achieve objectives. Planners should list all available alternatives.
3.  Selecting the best alternative – The planners should examine each alternative thoroughly in the light of their strong and weak points. The best alternative under the circumstances should be selected.

Answer 10:

1. Controlling helps in judging accuracy of standards – A good controlling system enables management to verify whether standards set are accurate and objective. An efficient controlling system keeps a careful check on the changes taking place in the organisation and in the environment and helps to review and revise standards, if necessary.
2. Controlling helps in ensuring order and discipline – Controlling creates an atmosphere of order and discipline in the organisation. Controlling helps to minimise dishonest behaviour on the part of the employees by keeping a close check on their activities.

Answer 11:

1. Supervision means guiding the efforts of employees and other resources to achieve desired results.
   Supervision – ‘it employs 10 operating managers support to the workers’.
2.  Motivation means stimulating people to action to accomplish desired goals.
   Motivation – ‘to pay double wages for working overtime and triple wages for working on holidays’.

Answer 12:
Following are the features of money market:

1. Short-term funds – Money market is essentially a market for short-term funds i.e., funds whose perk>4 of maturity is not more than one year.
2. Liquidity – Money market instruments are highly liquid. Money market instruments are close substitutes for money as there is a formal arrangement for their liquidity.
3.  Less risky – Money market instruments are generally much safer with a minimum risk of default.

Answer 13:
Following points highlight the need for consumer protection :
(i) Widespread exploitation of consumers – There is widespread exploitation of consumers in various ways given below :

• Underweight and undermeasurements
• Charging high prices
• Fake or duplicate goods
• Adulteration and impurities
• Misleading advertisements.

(ii) Unorganised consumers – Consumers in India are, more or less, unorganised. There are a few consumers organisations but they are not powerful to protect the interest of consumers.

(iii) Social responsibility – A business has social responsibilities towards various groups. Consumers form an important group among the many stakeholders of business. Hence, business has to take care of interests of consumers.

Answer 14:
Following are the functions of operational management i.e., lower level management:

1. To oversee the efforts of the workforce and solve work-related problems of the employees.
2.  To interact with the actual workforce and pass on the instructions of the middle management to the workers.
3. To ensure that the quality of output is maintained and wastage of material is minimised.
4. To ensure safety standards are maintained.

Answer 15:
(i) The step of organising process which has not been carried out properly is “assignment of duties”.
Having completed the grouping of activities into specific jobs, the next step of organising is assignment of duties. Assignment of duties means defining the work of different job positions and allotting the work to the employees according to their skills.

(ii) Following are the steps of the organising process taken by Kanaputti:

• Assigning the duties.
• Creating reporting relationship among the different job positions so that every employee should know as to whom he is to report.

(iii) Following are the points of importance of organising as reflected in given paragraph :

• Benefits of specialisation – Organising leads to a systematic allocation of jobs amongst the workforce. This reduces the workload as well as enhances productivity because of the specific workers performing a specific job on a regular basis. Repetitive performance of a particular task allows a worker to gain experience in that area and leads to specialisation.
• Effective administration – Organising provides a clear description of jobs and related duties. This helps to avoid confusion and duplication. Clarity in working relationships enables proper execution of work. Management of an enterprise, thereby, becomes easy and this brings effectiveness in administration.

Answer 16:
Following are the duties performed by Human Resource Manager :

1. Analyzing jobs – A human resource manager should analyse jobs and collect information about jobs to prepare job descriptions. This becomes the base for looking for potential employees.
2. Recruitment – Recruitment is a process of searching qualified people for the jobs. Recruitment allows a human resource manager to create a pool of the prospective candidates.
3.  Selection – Selection is a process of choosing the best person out of a number of prospective candidates for the job.
4. Performance appraisal – Performance appraisal means evaluating an employee’s current and past performance as against some standards. Performance appraisal facilitates a human resource manager to plan the policy of training, promotion and compensation.
5.  Compensation and incentive plans – A human resource manager should develop a sound compensation policy and incentive plans which should be adequate and equitable.

Answer 17:
(a) Manpower planning i.e., estimation of manpower requirement is the step of staffing process which has not been performed properly.

Manpower planning – Manpower planning is the process of determining the number and type of employees required. Manpower planning consists of following :

1. Workload analysis.
2. Workforce analysis.

(b) Following are the steps which immediately follow the step of manpower planning :
(1) Recruitment – Recruitment is the process of searching for prospective employees and stimulating them to apply for jobs in the organisation. Following are two sources of recruitment:

• Internal sources.
• External sources.

(2) Selection – Selection of personnel is a series of steps by which candidates are screened to find out which of them is best suited for a particular job. It is the process of dividing the applicants into two categories, namely,

• those who are to be employed, and
• those who are to be rejected.

Selection is a very comprehensive and complex process which involves a number of steps such as employment tests, interview, medical examination, etc.

Answer 18:
(1) Unicon Securities Pvt. Ltd. has not followed the step of “Delivery of Shares”. Trading procedure under the Depository System requires delivery of shares in D’mat form directly to investor’s D’mat Account.
(2) The Securities and Exchange Board of India (SEBI) is the apex statutory body of capital market to whom customers can complain to redress their grievances.
(3) Following are the objectives of SEBI:

• To regulate stock exchanges to ensure orderly functioning.
•  To enforce code of conduct for brokers, bankers etc.

Answer 19:

1. Marketing is the concept related to the activities mentioned in the given paragraph.
2.  Following are the important features of marketing :
   • Needs and wants – The focus of the marketing process is on satisfaction of the needs and wants of individuals and organisations. A marketer’s job is to identify needs of the customers and ( develop products to satisfy such needs.
   • Creating a market offering – Market offering refers to a complete offer for a product or service having given features at a certain price and available at a given location.
   • Customer value – A marketer adds to the value of the product so that the customers prefer it in relation to the competing products and decide to purchase it.
   • Exchange mechanism – The process of marketing works through the exchange mechanism. Two parties i.e., sellers and buyers are willing to enter into transaction with each other.
   • Universal – Marketing is not merely a business phenomena. Marketing activities are equally relevant to non-business organisations such as hospitals, schools, social and religious organisations.

Answer 20:
(i) Technological environment is the component of business environment highlighted in the given para.

Technological environment – Technology is an important resource used by the business enterprises. Technology consists of those processes by which the organisation transforms inputs (raw materials, energy, capital etc.) into output (goods and services). Thus, the technological environment includes those scientific and technological advancements that affect organisation’s transformation process. Technological environment facilitates the organisation’s efficiency and effectiveness. • *
Following are examples of technological environment:

1. Use of robots in production process.
2. Use of computer controlled machines and equipments.
3. Computerised information technology.

The change in technology has greater impact on many well-established practices of management.
(ii) Following are the features of business environment:

• Dynamic nature – Business environment is dynamic in the sense that it keeps on changing very fast. For example, entry of new competitors in the market, change in the tastes and preferences of the consumers, improvement in technology etc. are everchanging.
• Specific and general forces – Business environment includes both specific forces (such as investors, customers, competitors, suppliers) and general forces (such as social, political and technological conditions).

(iii) (a) Warning signal – A change in environment may be the source of many threats to a firm. A firm can anticipate the impact of such a change and prepare itself to meet such threat by adopting various measures. For example, if a firm finds that a new firm is entering into the market, it can meet such a threat by improving the quality of the product or engaging in aggressive advertising.
(b) Planning and policy formulation – The knowledge of change in the environment helps in the formulation of plans and policies. Understanding the environment helps the management to identify opportunities and threats affecting the business.

Answer 21:
(1) The type of organisation mentioned in the given para is formal organisation.
Formal organisation refers to the organisation structure which is designed by the management to accomplish a particular task. It specifies clearly the boundaries of authority and responsibility and there is a systematic coordination among the various activities to achieve organisational goals.
(2) Following are the features of a formal organisation :

1. Deliberately created – A formal organisation is deliberately designed by the management to facilitate smooth functioning of the organisation.
2. Emphasis on work – Formal organisation places more emphasis on work to be performed than interpersonal relationships among the employees.

(3) The purpose behind the formulation of rules for the employees that restricted their personal communication with the employees of other departments is to avoid the emergence of informal organisation because informal organisation may obstruct the fulfilment of organisational goals.

Answer 22:
According to Maslow, needs of individuals should be fulfilled for motivating employees.
Maslow identified five levels in his need hierarchy as follows in an ascending order of importance :

1. Physiological needs – These needs are basic for human survival and include need for food, water, air, shelter, sleep, thirst, sex, etc.
2. Security or safety needs – These are needs for physical safety as well as psychological security and include safety of person and property, security of job and need for a predictable, secure and safe environment.
3.  Social needs – These are needs for belongingness, friendship, love, affection, attention and social acceptance.
4. Esteem or ego needs – These needs are needs for self-esteem and need for other esteem. Self-esteem needs include needs for self-respect, self-confidence, competence, autonomy and knowledge. Other esteem needs relate to reputation, prestige, power, status, recognition and respect of others.
5. Self-actualization needs – This is the need “to be what one is capable of becoming” and include need for optimal development of potential abilities, knowledge and skills, need to be creative and achieve self-fulfilment.

Once a given level of needs is satisfied, it ceases to be a motivator and next higher level of need has to be activated to motivate the individual.
Maslow’s need hierarchy is concise and informative. It suggests that managers must be sensitive to the needs of subordinates and provide an environment for the satisfaction of their dominant needs.

Answer 23:
Following are the work study techniques that help in developing standards to be followed throughout the organisation:

(i) Time study – Time study is a work measurement technique which is designed to establish the time for a qualified worker to carry out a specified task under specified conditions at a defined rate of working. The object of time study is to determine the number of workers to be employed and to frame suitable incentive schemes. The method of time study depends upon volume and frequency of the task, the cycle time of the operation and time measurement costs.

(ii) Motion study – Motion study is a technique which involves close observation of the movements of the body and limbs required to perform a job. The purpose of motion study is to eliminate useless motions and determine the best way of doing a job. Motion study divides the motions into productive and unproductive motions. Motion studies may be made by using stopwatches, symbols or colours.

(iii) Fatigue study – Fatigue study is a technique used to find out how long a person can perform the standard task without any adverse effects on his health and efficiency. The objective of fatigue study is to determine the amount and frequency of rest intervals in completing a task.

(iv) Method study – Method study is a technique used to find out that one best way of doing the job which minimises the production cost and makes maximum use of available resources. Method study is related to method of performing a job by a proper mixture of resources.

Answer 24:
(a) Capital structure is the concept of Financial Management as advised by Mr Shah in the given para. Capital structure refers to the composition or make up of the amount of long-term financing such as preference shares, equity shares, debentures and long-term debts.
(b) Following are the factors affecting the capital structure as per discussion between Mr Shah and Mr Seth : (Any four)

1. Risk considerations – Financial risk and operating risk affect the capital structure of a company. Use of debt increases the financial risk of a business because company will have to pay interest and principal amount. Business or operating risk depends upon the fixed operating costs.
   Higher fixed operating costs result in higher business risk. If a firm’s business risk is lower, its capacity to use debt is higher.
2. desire to control – Desire of the promoters to have control over the company is an important factor. If the promoters want to retain control, they will issue more debentures and preference shares and less equity shares.
3. Cash flow position – Another factor to be considered for capital structure is the size of projected cash flows particularly when company wants to raise finance through debt. Projected cash flows should cover interest as well as principal amount.
4. Floatation costs – Process of raising resources also involves some cost. Public issue of shares and debentures requires considerable expenditure. Getting a loan from a financial institution may not cost so much. These considerations may also affect the choice between debt and equity and hence the capital structure.
5. Tax rate – Since interest is a deductible expense, cost of debt is affected by the tax rate. A higher tax rate makes debt relatively cheaper and increases its attraction vis-a-vis equity.

Answer 25:
(a) Public relations is the communication tool used by Coconut Joy Ltd.
Public relations is a promotional tool which involves a variety of programmes designed to promote a company’s image and its products in the eyes of the public. Public relations aims at creating and managing good relations with public. Public relations gives information whose creditability is more compared to other tools of promotion. The purpose of public relations is to create a favourable atmosphere for conducting business.

(b) The role of public relations in marketing management may be described as under :

1. Cooperation of the public – A company can achieve its objectives with the support of various stakeholders. Public relations keeps different stakeholders satisfied which ensures smooth functioning of business.
2. Goodwill – Public relations builds corporate image in a way that affects favourably on its products. It helps the company to expand market for its products.
3. Launching a new product – Public relations supplements other promotional tools to launch a new product. Public relations motivates salesmen and dealers. A good publicity before launching the product creates excitement and interest among the people.
4. Continuous demand – An effective public relations campaign results in continuous demand for the products. Public relations increases mutual understanding between the company and the people. Public relations supplements advertising to build awareness and brand knowledge.

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