Question

1)Comment on the importance why understands that good management of the capital budget is important for a company.

2)Discuss about the concept of structure of capital and its importance. Look for an example of a company and how manage its capital structure.

Answer 1

1)Capital budgeting decisions are of Paramount importance in financial decision.The profitability of company depends on level of investment made for long period. Moreover investments are made properly through evaluating the proposal by capital budgeting. Capital budgeting is important because it creates accountability and measurability. It helps in understanding both risk and return involved.

2) The Capital structure is how a entity finances it's overall operations and growth by using different sources of funds.

Debt comprises of bond issues and long term notes payable and equity comprises of common stock, preferred stock or retained earnings.

Capital structure is important as it defines the careful balance between debt and equity that a business uses to finance it's assets, day to day operations and future growth. Capital structure reflects firms financial and investment planning, it indicates risk zone of the firm, it acts as a tax planning tool and helps improve image and reputation of company.

Example of a company is explained in my working attached with this answer

This is how a company manages its structure.