Question

Kanav, after passing out of college with specialization in renewable energy, was determined to start a solar power plant. The venture required heavy investment in plant and machinery and less on manual labour. Kanav invested in the latest solar panel technology and infrastructure and purchased the latest solar panels, inverters and battery storage systems.

Despite the high risk and substantial investment, Kanav’s business had good expansion possibilities. The world was increasingly moving towards clean energy solutions, and there was a growing demand for sustainable power sources. So, Kanav decided to create a higher capacity to meet the anticipated demand quickly. This entailed further investment in fixed assets which Kanav was able to arrange.

As the years passed, the solar power plant did very well and played a pivotal role in the city’s transition towards a greener and more sustainable future. 

Identify and explain the two factors affecting the fixed capital requirements discussed in the above case.

Answer 1

The factors affecting fixed capital requirements highlighted in this scenario include:

1. Technology Upgrade: Industries that experience rapid technological advancements require more investment in fixed assets to replace older ones. Companies with little to no effect from technology upgrades require less investment.
2. Growth Prospects: Organizational growth necessitates increased investment in fixed assets. Expected expansion could cause a corporation to increase production capacity to quickly meet demand. Increased investment in fixed assets leads to increased fixed capital.