What are the factors affecting capital structure decisions?

The various factors which influence the decision of capital structure are:

• Cash Flow Position:
• Interest Coverage Ratio (ICR):
• Debt Service Coverage Ratio (DSCR):
• Return on Investment:
• Cost of Debt:
• Tax Rate:
• Cost of Equity:
• Floatation Costs:

What is capital structure What are the internal and external factors influencing capital structure?

Answer: Capital Structure & Internal and External influencing Capital Structure. Capital Structure constitutes two words i.e. Capital and Structure. The word ‘capital’ refers to the investment of funds in business while ‘structure’ means arrangement of different components in proper proportion.

Which among the following is not internal factors of capital structure?

The market risk premium is the difference between the expected return on a market portfolio and the risk-free rate. It does not form a part of internal factors affecting the WACC of a firm.

What is capital structure explain any 5 factors impacting capital structure decision?

Factors Affecting Capital Structure – Profitability, Cost of Capital, Nature of Business of Firm, Cash Flows, Control of Firm, Capital Market Conditions and a Few Others.

What are the assumptions of MM theory of capital structure?

The Modigliani-Miller theorem states that a company’s capital structure is not a factor in its value. Market value is determined by the present value of future earnings, the theorem states. The theorem has been highly influential since it was introduced in the 1950s.

How do you calculate mm approach?

Modigliani and Miller theories of capital structure (also called MM or M&M theories) say that (a) when there are no taxes, (i) a company’s value is not affected by its capital structure and (ii) its cost of equity increases linearly as a function of its debt to equity ratio but when (b) there are taxes, (i) the value …

What is capital structure What are the internal factors affecting the capital structure?

1) Cost of capital : – it is a process of raising the funds which involves the cost in planning the capital structure, the use of capital should be capable of earning revenue to meet the cost of capital. There are changes in this because of two reasons: (i) Interest rates are less than dividend rates.

Is an external factors affecting capital structure?

The general factors which are affecting the capital structure are as follows:-Company constitution,Company characteristics,Stability of Earnings… Compare Component cost and Composite cost.

What are the internal factors that affect capital structure?

I. Internal Factors:

• Financial Leverage: ADVERTISEMENTS:
• Risk:
• Growth and Stability:
• Retaining Control:
• Cost of Capital:
• Cash Flows:
• Flexibility:
• Purpose of Finance: