CBSE Class 12 Business Studies 2015 Outside Delhi set 1
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Question : 5 of 39
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How does 'cost of equity' affect the choice of capital structure of a company? Explain.
Solution:
More use of debt capital increases the financial risk of equity shareholders. Debt can be used only to a certain level. More use of debt beyond that certain level increases the cost of equity. Hence cost of equity affects the capital structure.
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