Question

XYZ company has been in the toys business for more than 10 years. XYZ is a reputable company and has a very strong brand name. However, the competition increased in the last 5 years forcing XYZ to invest on creating unique and novel toys in order to retain its current customers and attract new ones. In the above case XYZ used its capital for :*

a. Business Start-up

b. Paying short-term expenses

c. Purchasing of fixed assets

d. Business-expansion

Answer 1

The right option is (d).

 

Explanation:

Reason for the answer:

1. Business Startup- It refers to the first phase of operations when the business is initially setup and is in the introductory phase but here XYZ company is in business since 10 years and the line of operation is also same when investing more capital i.e. Toys. So this option is false.

 

2. Paying short term expenses- Short term expenses refers to expenses incurred on regular basis to keep the business functional like payment of bills, rents and wages. Here capital is invested to create unique toys to retain old customers and bring new ones also. So this option is false

 

3. Purchasing of Fixed assets - It refers to payment for acquiring Fixed assets like plants and machinery, Buildings, Equipments and Land. There is a difference between fixed asset and whole business. Here. XYZ may have purchased new machinery to produce unique and novel toys but its a whole new product range XYZ is introducing to retain old customers and bring new ones. So it has invested in other things also apart from fixed assets like marketing and sales, promoting the new range of products. So this option is false.

 

4. Business-expansion - It refers to the phase when business entity tries to grow its business by increasing the scale of operation and seeking new products to add to its existing business in order to generate additional profit and capture more market for widening its presence in the market. Here XYZ has done the same by investing to create unique and novel toys. It has expanded to survive the competition to expand its market base by retaining old customers and capturing new ones. 

 

This option is true.

The right option is (d).