MANAGEMENT

Detailed explanation-1: -Capital structure of a company affects both the profitability and the financial risk. A capital structure will be said to be optimal when the proportion of debt and equity is such that it results in an increase in the value of the equity share. Was this answer helpful?

Detailed explanation-2: -The effect that capital structure decisions have on profitability and firm value is that, it increases value through the present value of tax savings from the use of debt. Intuitively, this may imply that firms should use 100% debt to maximise their value.

Detailed explanation-3: -The common factors considered in capital structure decisions are the risk and the market capitalization of the company and the cost of capital. It is accepted that financial failure risk will increase due to the amount of debt.

Detailed explanation-4: -Answer and Explanation: The risks that is associated with financial decision making and performance is that these decision affect the value of firm directly. The risk of making investment in wrong securities where there is a risk of default on the part of borrower.

Detailed explanation-5: -Financial risk is a potential future situation that causes your business to lose money. This situation could affect your cash flow and leave you unable to meet your obligations.