Practicing Success
The capital structure should emphasize on:- |
Increasing the turnover of firm Increasing the assets and liabilities of the firm Increasing the shareholders wealth Increasing voting right of shareholders |
Increasing the shareholders wealth |
The correct answer is option 3- Increasing the shareholders wealth. Capital structure refers to the mix between owners and borrowed funds. These shall be referred to as equity and debt in the subsequent text. It can be calculated as the debt-equity ratio. The capital structure of a company, thus, affects both the profitability and the financial risk. A capital structure will be said to be optimal when the proportion of debt and equity is such that it results in an increase in the value of the equity share. In other words, all decisions relating to capital structure should emphasise on increasing the shareholders’ wealth. |