Capital Structure Dilemma at SRM Infrastructure Ltd.

Code : FCF0022

Year :

Industry : Infrastructure

Region : India

Teaching Note: Available

Structured Assignment :Not Available

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Abstract: Capital structure decision is a significant managerial decision which influences risk and returns to the shareholders. Every company has to plan its capital structure whenever funds are to be raised for capital investments. Taking the above into consideration, the case describes the capital structure of “SRM Infrastructure Ltd” and its expansion policy, for which the company was faced with the decision regarding capital requirement as well as sources of finance. It begins with a brief history of the company and then talks about various financing alternatives suggested by different consultants. Through this, the case tries to bring into light the Capital Structure theories behind each approach suggested by various consultants viz Net Income approach, Net operating income approach and Traditional approach. It helps the readers to understand the implications and practical application of each of the above theories and concludes with giving them options to evaluate the feasibility of each alternative.

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Pedagogical Objectives:

  • Why firms may have different financing mixes and factors affecting the choice of a financing mix.
  • Why debt may be preferred over equity as a source of finance as well as for the tax deductibility of interest.
  • Various theories and their application in Capital structure decision of a firm.
  • Deciding about optimal debt equity ratio in a firm.
  • Understanding the Government policies for infrastructure financing.
  • Understanding the impact of Capital Structure on firm valuation as well as on various performance ratios.

    Keywords : Capital structure,Cost of Capital,Valuation,Net Operating Income Approach,Traditional Approach,Net Income Approach,Infrastructure,Cost of Debt,Cost of Equity,Project Financing,Tax free bonds,Structural subordinated bonds.,Infrastructure bonds,Financing mix,Leverage effect

    Contents :
    » MR. P.M.SAXENA
    » RMPG Consultancy
    » Exhibits

    Case Introduction >>

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