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प्रश्न
When the proportion of debt and equity is such that it results in an increase in the value of equity share the ______ is/are said to be optimal.
पर्याय
working capital
fixed capital
capital structure
Both (a) and (b)
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उत्तर
When the proportion of debt and equity is such that it results in an increase in the value of equity share the capital structure is/are said to be optimal.
Explanation:
The ratio of debt to equity increases the value of equity shares when a company has an ideal capital structure.
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संबंधित प्रश्न
What is meant by Capital Structure?
What is meant by Trading on Equity?
How does cost of equity affect the choice of capital structure of a company? Explain
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:
Flexibility
Write notes on Capital structure and its components.
State, with reasons, whether the following statements are True or False (Any THREE) :
It is not possible to go ahead without financial plan.
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%).
Write the internal factors influencing Capital Structure.
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.
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.
State any three factors determining the choice of an appropriate capital structure of a company.
______ 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?
