"He also suggested her to take loan from Financial Institution as the cost of raising funds from Financial Institutions is low". Identify the factor reflected in the statement.
Show Hint
The cost of raising funds is the floatation cost factor.
Step 1: Spot the clue in the case:
Key phrase: cost of raising funds is low. Match this phrase with a factor of capital structure.
Step 2: Recall the related idea:
Each way of raising money has a cost of its own, such as fees and charges at the time of issue. That cost is named floatation cost. Before marking the answer, compare the key phrase of the case with the meaning of each option once more. Words that sound alike can mislead, so match meaning and not sound. Only one option fits both the case and the definition.
Step 3: Test option (A).
This matches the phrase directly, since the cost of getting funds in is what floatation cost means. Keep it.
Step 4: Test option (B).
Control is about voting power of existing owners. The line says nothing about it, so reject.
Step 5: Test option (C).
Risk is about the danger from fixed interest burden. Here the point is a cheap way of raising money, so reject.
Step 6: Test option (D).
Fixed operating costs belong to running the business and have nothing to do with raising funds, so reject.
Final Answer:
Because the cost of raising funds is low, the factor is floatation costs, option 1.
\[ \boxed{\text{Option 1}} \]
