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Explain the Following as Factors Affecting the Choice of Capital Structure: Flexibility - Business Studies

Explain the following as factors affecting the choice of capital structure:

Flexibility

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Solution

Flexibility: A firm’s capacity to borrow in the future is restricted because of excess debt. Therefore, a certain amount of borrowing is extended to meet unexpected situations to maintain flexibility.
More use of debt in present ⇒ Ability to use in future decreases
Balance should be maintained between debt and equity in the capital structure.

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