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प्रश्न
Explain the following as factors affecting the choice of capital structure:
Risk Consideration
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उत्तर
Risk Consideration: Debt involves financial risk in the sense that there is the compulsion to repay the debt amount in a fixed period of time. Any default in repayment may even lead to the liquidation of the firm. As against this, in case of equity, there is no such risk as it is not mandatory to pay dividends to shareholders.
Higher financial and operating risks ⇒ Lower proportion of debt
Lower financial and operating risks ⇒ Higher proportion of debt
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संबंधित प्रश्न
Viyo Ltd.' is a company manufacturing textiles. It has a share capital of Rs 60 lakhs. The earnings per share in the previous year was Rs 0.50. For diversification, the company requires additional capital of Rs 40 lakhs. The company raised funds by issuing 10% debentures for the same. During the current year the company earned profit of Rs 8 lakhs on capital employed. It paid tax @ 40%.
a. State whether the shareholders gained or lost, in respect of earning per share on diversification. Show you calculations clearly.
b. Also, state any three factors that favour the issue of debentures by the company as part of its capital structure.
Sakshi Ltd. is a company manufacturing electronic goods. It has a share capital ofRs 120 lakhs. The earning per share in the previous year wasRs 0.5. For diversification, the company requires additional capital ofRs 80 lakhs. The company raised funds by issuing 10% debentures for the same. During the current year the company earned profit ofRs 16 lakhs on capital employed. It paid tax @ 40%.
a. State whether the shareholders gained or lost in respect of earning per share on diversification. Show your calculations clearly.
b. Also state any three factors that favour the issue of debentures by the company as part of its capital structure.
What is meant by Capital Structure?
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Explain the following as factor affecting the choice of capital structure:
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Explain the following as factor affecting the choice of capital structure:
Floatation costs
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State any four factors affecting the decision that determines the overall capital and the financial risk of the enterprise.
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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 ______.
