Question

Discuss the various factors affecting the capital structure decisions giving appropriate examples.

Answer 1

Hello,

Capital Structure- Capital structure is a combination of debt and equity used by a company to finance its overall operations. Capital structure should be in such a manner that maximize the wealth of equityshareholder.
Debt and equity involves different risk, debt was less costly but more risky , equity was more expensive but less risky.
Equity are secured because they do not have a legal obligation to pay the dividend.

Factors affect the capital structure decision are

• Business risk
• Size of a firm
• operating leverage
• stability in cash flow
• Nature of industry
• Cost of debt
• tax rate
• Return on investment

  I hope this clear your doubt.

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