Assertion: Capital structure of a company affects both the profitability and the financial risk.
Reasoning: All decisions relating to capital structure should emphasize growth and survival of the company in the fiercely competitive market.
Answer & explanation
Correct answer: option 3
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 emphasize on increasing the shareholders