Advertisements
Advertisements
Question
How do ‘Floatation costs’ affect the choice of capital structure of a company? State
Advertisements
Solution
Floatation cost refers to the cost of raising funds. Higher the flotation cost of a particular source, lower is its preference in the capital structure and vice versa.
APPEARS IN
RELATED QUESTIONS
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.
Explain briefly any four factors which affect the choice of capital structure of a company.
What is meant by Capital Structure?
Explain how 'cost of debt' affects the choice of capital structure of a company
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:
Cost of equity
Explain the following as factors affecting the choice of capital structure:
Flexibility
Explain any four factors that affect the choice of capital structure of a company.
Write the external factors influencing capital structure.
What is meant by capital structure?
“Capital structure decision is essentially optimisation of risk-return relationship.” Comment.
Write the internal factors influencing Capital Structure.
Answer the following question.
'Determining the overall cost of capital and the financial risk of the enterprise depends upon various factors.' Explain any six such factors.
______ refers to a situation when a company is not able to meet its fixed financial charges.
State any four factors affecting the decision that determines the overall capital and the financial risk of the enterprise.
State any three factors determining the choice of an appropriate capital structure of a company.
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 ______.
