Capital Structure and Cost of Capital
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Accounting and Financial Management for Bankers — JAIIB.
One-liners from this chapter
Free sample — 8 of 36 rapid-fire Q&A cards.
Highly Leveraged / Geared — Meaning / Risk-Return Profile?
Meaning: Ratio of debt capital is very high.; Risk-Return Profile: High financial risk; low cost of capital; magnified returns on equity (good times) and magnified losses (bad times).
Low Leveraged / Geared — Meaning / Risk-Return Profile?
Meaning: Ratio of debt capital is low.; Risk-Return Profile: Lower financial risk; higher cost of capital; stable but moderate returns on equity.
Capital (₹ lakh) — A: 100% Debt / B: 50% Debt / 50% Equity / C: 100% Equity?
A: 100% Debt: Debt 4.00 / Equity 0; B: 50% Debt / 50% Equity: Debt 2.00 / Equity 2.00; C: 100% Equity: Debt 0 / Equity 4.00
EBIT (₹ lakh) — A: 100% Debt / B: 50% Debt / 50% Equity / C: 100% Equity?
A: 100% Debt: 2.00; B: 50% Debt / 50% Equity: 2.00; C: 100% Equity: 2.00
Less: Interest @ 12% — A: 100% Debt / B: 50% Debt / 50% Equity / C: 100% Equity?
A: 100% Debt: 0.48; B: 50% Debt / 50% Equity: 0.24; C: 100% Equity: 0.00
PBT (₹ lakh) — A: 100% Debt / B: 50% Debt / 50% Equity / C: 100% Equity?
A: 100% Debt: 1.52; B: 50% Debt / 50% Equity: 1.76; C: 100% Equity: 2.00
Less: Tax @ 25% — A: 100% Debt / B: 50% Debt / 50% Equity / C: 100% Equity?
A: 100% Debt: 0.38; B: 50% Debt / 50% Equity: 0.44; C: 100% Equity: 0.50
PAT (₹ lakh) — A: 100% Debt / B: 50% Debt / 50% Equity / C: 100% Equity?
A: 100% Debt: 1.14; B: 50% Debt / 50% Equity: 1.32; C: 100% Equity: 1.50
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