Question 11:State any four factors affecting the financial decision that is concerned with raising of finance using shareholders’ funds and borrowed funds.
The correct answer is – Here are four factors affecting the financial decision that is concerned with raising finance using shareholders’ funds and borrowed funds:
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Cost of capital: The cost of capital is the rate of return required by investors or lenders to provide funds to the company. The cost of capital can affect the financial decision by determining the optimal mix of debt and equity financing. The company must consider the cost of each type of financing and choose the most cost-effective option.
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Risk profile: The risk profile of the company can affect the financial decision by influencing the type and amount of financing that the company can obtain. If the company has a high-risk profile, lenders may be reluctant to provide financing, and the cost of financing may be higher. This can affect the company’s ability to raise capital.
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Financial flexibility: Financial flexibility refers to the company’s ability to adjust its financing structure in response to changing market conditions or business needs. A company with high financial flexibility may be able to raise capital quickly and at a lower cost, whereas a company with low financial flexibility may have limited options for raising capital.
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Capital structure: The capital structure refers to the mix of debt and equity financing used by the company. The financial decision must consider the optimal mix of debt and equity financing based on factors such as the cost of capital, risk profile, and financial flexibility. The company must also consider the impact of its capital structure on its credit rating and the potential for financial distress.
