Question

a) What is the main determinant of capital structure? b) Explain using examples from current events....

a) What is the main determinant of capital structure? b) Explain using examples from current events. C) In your answer can you include, if applicable, concepts of growth, profitability, firm leverage, PECKING order theory. asymmetric information, liquidity and or any other concept that is related in determining capital structure.  

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Answer #1

Capital structure is a mix of securities a company chooses so as to have least cost of capital

Main determinants of capital structure:-

- Financing cost

- Sales projection

- Period/Length of financing

- Company size

Pecking order theory - This theory says that to have the least cost of capital, the companies will first use retained earnings which would be followed by debt and then equity. So, equity would be the last available option for the company to raise capital as the cost of equity is maximum.

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