R M FurnitureKraft Pvt. Ltd. (A): Capital Structure Conundrum
R M FurnitureKraft Pvt. Ltd. has been a successful furniture manufacture firm in India all these years. However, as the top line growth was declining of late, the company was mulling over the possible ways to improve the sales figures. Rahul Mehrotra (Rahul) had recently joined the family-owned business as Managing Director (MD) and the responsibility to regain the lustre and bring back the past glory, fell on his shoulders. Rahul felt that making the necessary captial investment would impove the business scenario. However, he was unsure which form of capital structure would be suitable for his company. As his decision to make the right financial decision involved changing the capital structure of the company, Rahul was in a fix whether his decision to bring in the debt component into an equitybased firm would actually boost up the profits. Rahul was in a predicament as he was unable to envisage the consequences of his decision................
Exhibits
Exhibit I: Income Statement (for the Year ending March 31st 2015)
Exhibit II: Balance Sheet (as on March 31st 2015)