Advertisements
Advertisements
प्रश्न
How do ‘Floatation costs’ affect the choice of capital structure of a company? State
Advertisements
उत्तर
Floatation cost refers to the cost of raising funds. Higher the flotation cost of a particular source, lower is its preference in the capital structure and vice versa.
APPEARS IN
संबंधित प्रश्न
Explain briefly any four factors which affect the choice of capital structure of a company.
Explain the following as factors affecting the choice of capital structure:
Cost of equity
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:
Return on Investment
Explain the following as factors affecting the choice of capital structure:
Risk Consideration
Write the external factors influencing capital structure.
State, with reasons, whether the following statements are True or False (Any THREE) :
It is not possible to go ahead without financial plan.
Owned Capital Borrowed Capital
Answer the following question.
'Determining the relative proportion of various types of funds depends upon various factors.' Explain any six such factors.
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.
Financial leverage is called favourable if :
Which component of capital structure determines the overall financial risk?
Tapan, after leaving his job, wanted to start a Private Limited Company with his son. His son was keen that the company may start manufacturing of Mobile-phones with some unique features. However, Tapan felt that the mobile phones are prone to quick obsolescence and a heavy fixed capital investment would be required regularly in this business. Therefore, he convinced his son to start a furniture business. ______ factor affecting fixed capital requirements is making Tapan choose furniture business over mobile phone.
State any four factors affecting the decision that determines the overall capital and the financial risk of the enterprise.
Krish limited is in the business of manufacturing and exporting carpets and other home decor products. It has a share capital of ₹ 70 lacs at the face value of ₹ 100 each. Company is considering a major expansion of its production facilities and wants to raise ₹ 50 lacs. The finance manager of the company Mr. Prabhakar has recommended that the company can raise funds of the same amount by issuing 7% debentures. Given that earning per share of the company after expansion is ₹ 35 and tax rate is 30%, did Mr. Prabhakar give a justified recommendation?
Show the working.
______ refers to the increase in profit earned by the equity shareholders due to the presence of fixed financial charges like interest.
Which of the following is not a factor affecting capital structure of a company?
The Board of directors of Medex Pharma Ltd. decided to issue debentures worth ₹ 40 lakhs in order to finance a major Research and Development project. This would increase the Debt Equity ratio from 1:1 to 2:1.However, at the same time it would increase the Earnings per share.
The reason that will justify the above situation is ______.
