Identify the factor which does not affect the choice of capital structure of a company ?

Diversification

The correct answer is option (3) : Diversification

Diversification, in the context of a company's capital structure decisions, is typically not a direct factor. Capital structure decisions primarily focus on how a company raises and uses funds, such as through debt and equity. Factors like cash flow position, flotation costs, and the cost of equity are more directly related to these financing decisions. Diversification, on the other hand, is usually a consideration in an investment portfolio context rather than in determining a company's capital structure.

Cash Flow Position of the Company: A stronger cash flow position may make debt financing more viable than funding through equity

Floatation Costs: Higher the floatation cost, less attractive the source

Cost : The cost of raising funds through different sources are different. A prudent financial manger would normally opt for a source which is the cheapest.