Explanation of the various views of optimal capital structure. Explanation of the relevance or irrelevance of...

Explanation of the various views of optimal capital structure.

Explanation of the relevance or irrelevance of Dividend policy based on real world factors. Do not copy and paste from your lecture notes or textbook but use your own words only.)

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Question 1. Capital structure refers to the mix of a company's capitalisation. That is a a mix of long term sources of funds such as debentures, preference share capital, equity share capital and retained

earnings. It is for meeting the total capital requirement.

While choosing a suitable Capital structure various factors need to be taken into consideration like cost, risk,

control, flexibility and other considerations like nature of

industry, competition in the industry etc.

The decision in relation to the financing of firms assets is very crucial in every business. The financial manager is often in a dilemma to choose the optimum portion of debt and equity.

Importance of optimal capital structure is

1. Value maximization of the company.

2. cost minimization.

3. Growth of the company increases.

4. Increase in the share price.

jeff jeffy answered 1 year ago

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