Fundamentals of Corporate Finance (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
Fundamentals of Corporate Finance (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
4th Edition
ISBN: 9780134475561
Author: Jonathan Berk, Peter DeMarzo, Jarrad Harford
Publisher: PEARSON
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Chapter 16, Problem 1CC
Summary Introduction

Capital structure: It refers to that structure which shows the combination of arranged funds from different sources of finance such as equity and debt.

To Explain: The components of the firm’s capital structure.

Expert Solution & Answer
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Answer to Problem 1CC

Solution:

The components which constitute the firm’s capital structure are mentioned below:

  • The all long-term sources of capital constitute the capital structure.
  • Few examples of long-term debt are common stock and preferred stock.
  • To decide capital structure means to decide upon the ratio of owned capital (i.e. equity share capital, preference share capital, reserves & surplus) to borrowed capital (i.e. debentures, loans, Public Deposits etc)

Explanation of Solution

  • A firm can raise its capital by debt or equity.
  • It is not necessary that proportion of debt and equity is equal in the capital structure.
Conclusion

Therefore, the debt and equity (long-term capital sources) constitute the firm’s capital structure.

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Working capital explained; Author: The Finance Storyteller;https://www.youtube.com/watch?v=XvHAlui-Bno;License: Standard Youtube License