Capital Structure

Capital Budgeting

Capital Structure:

"Capital Structure is the permanent financing of the firm represented primarily long term debt, preferred stock and common stock but excluding all short term credit." - Weston and Brigham

"Capital Structure is regarded as the proportion of debt and equity" - Van Horne

Optimum Capital Structure:

"The optimum capital structure may be defined as the capital structure or combination of debt and equity that leads to the maximum value of the firm." - Khan and Jain

Read: Capital Budgeting

"The optimum Capital Structure may be define as the relationship of debts and equity securities which maximizes the value of the firm's equity stock." - P. V Kulkarni

Arbitrage:

"Arbitrage simply means finding two things that are essentially the same and buying cheaper and selling the more expensive." - Van Horne

Formation of Capital:

"The amount which a community adds to its capital during a period is known as capital formation during the period." - Benham

Break even analysis (Indifference Point):

"The indifference point in planning capital structure is that point at which the after tax cost of acquisitions of outside fund (Preference share and Debt) is equal to the rate of return from the investment. At this point one is indifference as to the alternative financing plan." - B. Banerjee

"The point of indifference is always at the EBIT level at which EPS or return to equity, are the same regardless of the debt equity combination." - E. W. Walker

"The firm's break even point is the level of sales at with all operating costs are covered or alternatively when the EBIT is zero." - Khan and Jain

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