The CFO of a company wants to change the capital structure of the company. Identify the factors which affect the choice of capital structure.

(A) Stock Market Condition

(B) Tax Rate

(C) Cost of Equity

(D) Level of Competition

Choose the correct answer from the options given below:

Option 1 -> (A), (B) and (D) only - This excludes Cost of Equity which is a fundamental factor in determining the optimal debt-equity mix.

Option 2 -> (A), (B) and (C) only - This includes all the primary financial factors that directly influence capital structure decisions while excluding competition which is not a direct determinant.

Option 3 -> (A), (B), (C) and (D) - This incorrectly includes Level of Competition, which affects business strategy but is not a primary factor in capital structure decisions.

Option 4 -> (B), (C) and (D) only - This excludes Stock Market Condition which is crucial for timing equity issuance and affects financing decisions.

Hence, Option 2: (A), (B) and (C) only -> Stock Market Condition affects the timing and feasibility of equity issuance; Tax Rate creates the debt tax shield advantage making interest payments deductible; Cost of Equity directly impacts the weighted average cost of capital (WACC) and optimal debt-equity ratio. Level of Competition is primarily a business strategy factor, not a capital structure determinant -> correct