Answer to Question #270582 in Accounting for Nhlaphu

Question

With reference to financial management, write a short essay on the concept of capital structure as a key fundamental in respect of managers’ maximising corporate value for shareholders. Maximum 600 words and include references.

Answer 1

The capital structure decision is critical to the firm since the optimal capital structure reduces the firm's overall cost of capital while also increasing its value. The use of debt funds in capital structure raises EPS since debt interest is tax deductible, resulting in a rise in share price.