Explain the following as factors affecting the choice of capital structure:
Cost of equity
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Solution
Cost of equity: In terms of dividend payments, higher the cost of equity, lower is its proportion in total capital.
Use of debt increases ⇒ Financial risk increases ⇒ Expectation of rate of return increases ⇒ Difficult to opt for ⇒ Equity cost increases
Concept: Concept of Capital Structure
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