What are some ways in which the capital structure decisions can affect the value of operations?

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What are some ways in which the capital structure decisions can affect the value of operations?

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What are some ways in which the capital structure decisions can affect the value of operations?

Explanation & AnswerSolution by a verified expert

Explanation

Debt is the funds that are borrowed from the lender and have to be repaid in the future along with interest expense whereas equity is an investment in profitable projects which give ownership rights to the holders.
Therefore issuing more debt or equity affects the value of operations as issuing more debt makes shareholders unhappy as it reduces their earnings whereas issuing more equity does not give a chance of business expansion.

Verified Answer

Value of operations can be affected by the change in the proportion of debt and equity in the capital structure.

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