GENERAL KNOWLEDGE

Detailed explanation-1: -Capital structure can be a mixture of a company’s long-term debt, short-term debt, common stock, and preferred stock. A company’s proportion of short-term debt versus long-term debt is considered when analyzing its capital structure.

Detailed explanation-2: -Capital structure is the mixture of debt and equity maintained by a firm. The financial manager must decide on the best combination of debt and equity. In addition he/she must determine the least expensive sources of funds.

Detailed explanation-3: -An Appropriate Capital Structure is that capital structure at that level of debt-equity proportion where the market value per share is maximum and the cost of capital is minimum. It is important for a company to have an appropriate capital structure.

Detailed explanation-4: -The optimal capital structure is estimated by calculating the mix of debt and equity that minimizes the weighted average cost of capital (WACC) of a company while maximizing its market value. The lower the cost of capital, the greater the present value of the firm’s future cash flows, discounted by the WACC.