MANAGEMENT

Detailed explanation-1: -What Is Optimal Capital Structure? The optimal capital structure of a firm is the best mix of debt and equity financing that maximizes a company’s market value while minimizing its cost of capital. In theory, debt financing offers the lowest cost of capital due to its tax deductibility.

Detailed explanation-2: -Preference shares are flexible-they can be used as a long-term source of funding or transitional capital with a variety of features to suit the need. Improves company’s borrowing capacity, as now debtors have a bigger buffer below them. Non dilutive-in so far as voting rights are concerned.

Detailed explanation-3: -Share capital is the money invested in a company by the shareholders. Share capital is a long-term source of finance. In return for their investment, shareholders gain a share of the ownership of the company.

Detailed explanation-4: -Solution(By Examveda Team) The use of preference share capital as against debt finance reduces DFL. A degree of financial leverage (DFL) is a leverage ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure.