Question

EXPLAIN THE OBJECTS OF CAPITAL STRUCTURE PLANNING AND AND THE FACTORS AFFECTING IT

Answer 1

Answer:

Estimation of capital requirements for current and future needs is important for a firm. Equally important is the determining of capital mix. Equity and debt are the two principle sources of finance of a business. But, what should be the proportion between debt and equity in the capital structure of a firm now much financial leverage should a firm employ? This is a very difficult question. To answer this question, the relationship between the financial leverage and the value of the firm or cost of capital has to be studied. Capital structure planning, which aims at the maximisation of profits and the wealth of the shareholders, ensures the maximum value of a firm or the minimum cost of the shareholders.