Advertisements
Advertisements
प्रश्न
Kaysons Ltd. was a reputed company manufacturing automotive parts for electric vehicles. As the demand for the electric vehicles grew, Kaysons Ltd. needed more capital to keep up with the demand for automotive parts. Atul, the Finance Manager of Kaysons Ltd. suggested that the company should raise funds through a public issue of shares as the stock market was bullish. The Chief Executive Officer fully understood that this process of raising funds would not only reduce the managements’ holding in the company but would also require considerable expenditure. Even then he agreed with the Finance Manager and the public issue of shares was made complying with the guidelines of Securities and Exchange Board of India.
Identify and state four factors affecting choice of capital structure being discussed above.
उत्तर
The following are the factors that influence the capital structure choice:
- Floatation cost: Floatation cost is the price of raising money. Because a higher floatation cost makes a source of funding less appealing, they have an impact on the choice of capital structure.
- Control: While equity issues reduce management's stake in the company, debt issues do not result in a reduction of management's authority over the business.
- Stock market conditions: The capital structure is affected by the state of the stock market. Even at a greater price, equity shares can be readily issued during the boom time. It could be challenging for the business to issue equity capital during a recession.
- Regulatory framework: All businesses must function in accordance with the legal regulatory framework. Fundraising requires respect to specific guidelines and standards established by SEBI.
