The capital structure of a firm refers to the firm\'s: a. buildings and equipmen

Question

The capital structure of a firm refers to the firm's: a. buildings and equipment. b. organizational chart. c. available cash. d. long-term debt and equity. e. current assets and liabilities.
The capital structure of a firm refers to the firm's: a. buildings and equipment. b. organizational chart. c. available cash. d. long-term debt and equity. e. current assets and liabilities.
The capital structure of a firm refers to the firm's: a. buildings and equipment. b. organizational chart. c. available cash. d. long-term debt and equity. e. current assets and liabilities.

Explanation / Answer

Answer is d. long- term debt and equity

There are majorly two components in the Capital Structure namely Debt and Equity. Debt is the outside loans whereas Equity is the owner’s fund. We know that debt is taken from outside the company and hence it involves risk of repayment. On the other hand, equity is the funds generated from the owners and hence involves very low risk. We can therefore say if the capital structure has higher debt percentages then it will be riskier for the company to consider a project and vice versa.

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