Question

1. Explain and define capital structure. 5 pt.
2. Illustrate and explain the COGS, OH and Labor diagram (Market Based Pricing). Come up with some numbers and explain why selected that percentage. 10pt.
3. Define and explain MSRP. 5pt.
4. Define and give an example of a process. 2pt.
5. What is dry powder? Explain. 2pt.
6. What is equity? Why is it so important? Explain. 3pt.
7. Why would LIBOR rise? What would be the consequences if LIBOR raises? As an investor, how should you be looking at LIBOR? Do you want LIBOR to go up, down or stable? Think and Explain.

Answer 1

1.Capital structure is the combination of an optimum mix of equity capital and the debt capital and it is used by various businesses in order to finance itself according to the need and structure of the organisation.

Debt capital is one of the most important part of capital structure because it is provided with the interest tax benefit and which is not taxable as the interest payable on the debt are not in nature so the cost of debt is always a subject to the overall capital structure.

Equity capital generally refers to the ownership and they are also part of the capital structure because they will be provided with no mandatory payment obligation.

so capital structure is about finding out and optimum mix about debt capital and equity capital and balancing the benefit of debt capital with the cost of financial distress.