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प्रश्न
Explain the following as factors affecting the choice of capital structure:
Control
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उत्तर
Control: Equity shareholders are regarded as owners of the company as they have complete control over the company. Owners and existing shareholders have complete control over the company as they employ more of debt securities.
If management wants to keep control in its own hands ⇒ More debt
If management can share control with others ⇒ More equity
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संबंधित प्रश्न
Explain briefly any four factors which affect the choice of capital structure of a company.
Explain how 'cost of debt' affects the choice of capital structure of a company
How does cost of equity affect the choice of capital structure of a company? Explain
How do ‘Floatation costs’ affect the choice of capital structure of a company? State
Explain the following as factors affecting the choice of capital structure:
Stock-Market conditions
Explain the following as factors affecting the choice of capital structure:
Flexibility
Explain the following as factors affecting the choice of capital structure:
Risk Consideration
Explain any four factors that affect the choice of capital structure of a company.
Write the external factors influencing capital structure.
Write notes on Capital structure and its components.
What is meant by capital structure?
Sunrises Ltd. dealing in readymade garments, is planning to expand its business operations in order to cater to international market. For this purpose the company needs additional Rs. 80,00,000 for replacing machines with modern machinery of higher production capacity. The company wishes to raise the required funds by issuing debentures. The debt can be issued at an estimated cost of 10%. The EBIT for the previous year of the company was Rs. 8,00,000 and total capital investment was Rs. 1,00,00,000. Suggest whether issue of debenture would be considered a rational decision by the company. Give reason to justify your answer. (Ans. No, Cost of Debt (10%) is more than ROI which is 8%).
“Capital structure decision is essentially optimisation of risk-return relationship.” Comment.
Write the internal factors influencing Capital Structure.
Read the following text and answer the following questions on the basis of the same:
Mr. A. Bose is running a successful business. Mr. Bose is the owner of R. K. Cement Ltd. Mr. Bose decided to expand his business by acquiring a Steel Factory. This required an investment of Rs. 60 crores. To seek advice in this matter, he called his financial advisor Mr. T. Ghosh who advised him about the judicious mix of equity (40%) and Debt (60%). Employ more of cheaper debt may enhance the EPS. Mr. Ghosh 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. Ghosh, Mr. Bose decided to raise funds from a financial institution.
Identify the concept of Financial Management as advised by Mr. Ghosh in the above situation.
______ refers to a situation when a company is not able to meet its fixed financial charges.
ICR = ______
State any four factors affecting the decision that determines the overall capital and the financial risk of the enterprise.
