How would a financial manager determine optimal capital stru

How would a financial manager determine optimal capital structure? How this would fit in with the company\'s capital expenditures, growth plans and operating results?

***Please answer with originally and do not copy what\'s already in chegg or online 300 words.

Solution

Capital Structure Management or Planning the Capital Structure

Estimation of capital requirement for current and future needs is important for a firm. Equally important is determining of capital mix. Equity and debt are the two principle source of finance of a business. But what should be the proportion between dent and equity in the capital structure of a firm? How much financial leverage should a firm employ? This is a very difficult question. To answer this question the relationship between financial leverage and the value of the firm or cost of capital has be studied. Capital structure planning which aims at the maximization of profits and the wealth of the shareholders, ensure the maximum value of a firm or the minimum cost of capital. It is very important for the financial manager too determine the proper mix of debt and equity for his firm. In principle, every firm aims at achieving the optimal capital structure.

Essential Features of a sound/capital mix

The capital structure of a concern depends upon a large number of factors such as leverage or trading on equity growth of the company, nature and size of the business, the idea of retaining control , flexibility of capital structure, requirement of investors, costs of floatation of new securities, timing of issue etc.Some of these factors are discussed below:

A manager must consider these factors while determining the capital structure.