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Sehaj joined his father's business of Organic masalas, near Baddi in Himachal after completing his MBA. In order to capture a major share of the market, he decided to sell the product in small attractive packages by using the latest packaging technology and machinery. He believed that this project has huge financial potential in terms of sales and cash flows. Father asked Sehaj to prepare a financial blueprint for the organization's future operations. His father suggested that they hire financial consultants to help them with various sources of funds. The consultant enlisted various sources of finance and their associated costs of public issue to determine the optimal source(s) of finance. The consultant also referred to certain guidelines issued by SEBI.

"The consultant also referred to certain guidelines issued by SEBI" Identify the factor affecting capital structure decision referred to here.

Solution

✅ Correct Option: 2

Issue of shares and debentures must comply with SEBI guidelines, while loans require agreements with lenders. Referring to SEBI guidelines while choosing sources of finance reflects the regulatory framework as a factor affecting the capital structure decision.

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