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प्रश्न
Explain the following as factor affecting the choice of capital structure:
Floatation costs
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उत्तर
- When a business generates money by issuing securities, it faces flotation charges, which include underwriting, legal, and registration fees.
- These expenses have a big impact on the capital structure decision.
- The business may decide to use a smaller percentage of a certain funding source in its capital structure in order to save costs if the flotation costs of that funding type, such as issuing shares, are high.
- On the other hand, sources that have lower flotation costs might be more appealing.
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.
What is meant by Trading on Equity?
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
Explain the following as factor affecting the choice of capital structure:
Cash flow position
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
Explain the following as factors affecting the choice of capital structure:
Control
Explain any four factors that affect the choice of capital structure of a company.
Write the external factors influencing capital structure.
“Capital structure decision is essentially optimisation of risk-return relationship.” Comment.
Answer the following question.
'Determining the relative proportion of various types of funds depends upon various factors.' Explain any six such factors.
Which component of capital structure determines the overall financial risk?
Assertion (1): Higher the flotation cost, less attractive the source.
Reason (R): The choice between the payment of dividend and retaining the earnings is, to some extent, affected by the difference in the tax treatment of dividends and capital gains.
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.
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 ______.
