Q6.Explain major considerations in capital structure planning. Write about the dividend policy and factors affecting dividend decisions. (Explanation of factors of capital structure planning 6 marks; Explanation of dividend policy 2 marks; factors affecting dividend decisions 2 marks) 10marks
1. Trading on Equity:
The word “equity” denotes the ownership of the company. Trading on equity means taking advantage of equity share capital to borrowed funds on reasonable basis. It refers to additional profits that equity shareholders earn because of issuance of debentures and preference shares.
2. Degree of control:
In a company, it is the directors who are so called elected representatives of equity shareholders.
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