Category Archives: DESIGNING CAPITAL STRUCTURE

CAPITAL STRUCTURE PRACTICES IN INDIA CAPITAL STRUCTURE PRACTICES IN INDIA   Finance-Assignments.comInstructions Feel free to send us an inquiry, we reply back real quick. Or directly email us at order@finance-assignments.comName *Email *Phone *Requirements/ Instructions File Upload File Upload File Upload  VerificationPlease enter any two digits *Example: 12This box is for spam protection - please

TABLE Effect of Taxes on Capital Structure Decision TAX PLANNING The alternative III is obviously the best. Effect of Taxes on Financing Alternatives TAX PLANNING Thus, the company will be able to raise dividend on shares to 25 per cent only if the return the new-project under the four alternatives are 54(A), 42(8), 47(C) and 30(0). Above all, it should be remembered that financial theory has not developed to the

TAX PLANNING Finally, tax planning is likely to have a significant bearing on capital structure decisions. Under till  Tax Act, 1%1, while interest on borrowed funds is allowed as a deduction under Section is dividend on shares is not deductible from the operating profits of a company. With effect April 1. 2003, distributed profits are subject to an extra 10 per cent tax under Sections 11, cost of raising financ

CHARACTERISTICS OF THE COMPANY The characteristics of a company in terms of size and credit standing, among others, also vital role in determining the share of senior securities and equity in its capital structure. The management’s freedom of choice is extremely limited in the case of small and companies. Companies that are very small must rely, to a considerable degree, upon the funds for their financing; t

TIMING OF ISSUE Closely related to flexibility in deciding the types of funds to be used is the question of Frequently very substantial savings may be obtained by proper timing of security issues. The timing of the public offerings is also an important consideration in capital structure decision firm. Public offering should be made at a time when the state of the economy as we capital market is ideal to provide

MAINTAINING MANEUVERABILITY FOR COMMERCIAL STRATEGY Maneuverability refers to a firm’s ability to adjust its sources of funds in either recursion-increase, in response to changes in the need for funds. That is, the finance manager must keep in a situation where he can change positions. Therefore, while designing the capital, he should not lose sight of the future impact on the present financial plan. For

CONSULTATION WITH INVESTMENT BANKERS AND LENDERS Another useful approach in deciding the proportion of various securities in a firm’s structure is to the opinion of investment analysts, institutional investors, investment bankers and lenders. analysts, having been in business for a considerable period of time, acquire expertise and access to information regarding securities of a large number of companies

NATURE OF INDUSTRY The nature of industry is one of the most important elements in determining the financial leverage a firm can carry safely without any risk of bankruptcy. If an industry’s are subject to wide fluctuations, over a business the firm should have a low degree of leverage. Such firms will already have a high operating leverage. In case both are high, the risk of the firm as determined by the c

LEVERAGE RATIOS FOR OTHER FIRMS IN THE INDUSTRY Yet another approach to the capital structure decisions is to make a comparison with the equity ratios of companies belonging to the same industry, having a similar business risk rationale of the use of industry standards is that debt-equity ratios appropriate for other firms similar line of business should be appropriate for the company as well. Industry standards

CONTROL Another consideration in planning the types of funds to use is the attitude of the management towards control. Lenders have no direct voice in the management of a company. They may, course, place certain restrictions in the loan agreement on the management’s activities. So on as there is no default in the payment of interest or the repayment of the principal there is link that they can do legally