Question

What is capital structure ? Mention few factors that influence capital structure. (2+6=8)​

Answer 1

Answer:

Factors that affect the capital structure are: (1) Debt Ratio (debt ratio); (2) Size (size of the company); (3) The Interest Coverage Ratio (interest coverage ratio); and (4) The Growth of the Firm (growth).

Cost of Floating the Capital:

Prevailing rate of interest, rate of return expected by the prospective investors, and administrative expenses are the various factors which affect the cost of financing. Generally, cost of financing by issuing debentures and preference shares for a reputed company is low.