Internal factors which influencing the capital structure

Question

Write down the internal factors which influencing the capital structure?

Answer 1

The internal factors which are influencing capital structure are illustrated below :-

1) Cost of capital : - it is a procedure of raising the funds that engages the cost in planning the capital structure, the employ of capital must be able of earning revenue to meet the cost of capital. There are changes in this due to two reasons:

i) Interest rates are least than dividend rates.

ii) Interest paid on borrowed capital is a permissible for income tax reasons.

2) Risk factor : Company increasing the capital by borrowed capital, as it admits the risk in two ways:

i) Company manages the payment of interest and installments of borrowed capital at prerecorded rate and time devoid of being concerned about the losses and profits.

ii) Borrowed capital is safe capital in the case where the company unsuccessful to meet the contract done with the lenders of the money.

3) Control Factor : These factors have been considered through the private companies while increasing extra funds and planning the capital structure. In this company plans to elevate long term funds by issue the preference and equity shares. It does not have relation with the borrowed capital.