Abstract :
The paper deals with a number of factors relating to the firm´s choice between equity and fixed interest capital formation and the treatment assumes no prior knowledge of the subject since terminology is established within the context. Ample references are quoted to facilitate a more specialised study, if desired, and the work should be of particular interest to managers and directors of small businesses who may be contemplating an expansion or re-organisation of capital structure. The level of discussion has been designed also to be of interest to the functional specialist manager or engineer with little or no prior contact with or knowledge of the field of corporate finance. Considerations affecting ownership and control are discussed separately in order to draw attention to the not infrequent dichotomy between the two aspects. The cost of capital is assumed to comprise two main elements, initial and recurring, and the return on investment section surveys the differing methods currently in use for appraisal of investment projects. The paper also surveys risk and utility factors and it concludes with sections on corporate strategy, convertible loan stock and `rights¿¿ issues. It is evident that the transformation of the primary and secondary capital markets during the latter part of 1973 and in 1974 has affected the subject of capital structure in the private sector, but the criteria discussed in the paper continue to have long-term relevance.
