The correct answer is: A. Bargaining power with the suppliers
The capital structure of a business entity is the mix of debt and equity financing that a company uses to fund its operations. The capital structure of a company is influenced by a number of factors, including the company’s risk profile, its growth prospects, and its tax situation.
One of the most important factors that influences a company’s capital structure is its bargaining power with its suppliers. If a company has a strong bargaining power with its suppliers, it can negotiate lower prices for its inputs, which will reduce its costs and improve its profitability. This, in turn, will make it easier for the company to borrow money and finance its operations with debt.
On the other hand, if a company has a weak bargaining power with its suppliers, it will have to pay higher prices for its inputs, which will increase its costs and reduce its profitability. This, in turn, will make it more difficult for the company to borrow money and finance its operations with debt.
In conclusion, the bargaining power of a company with its suppliers is one of the most important factors that influences its capital structure. A strong bargaining power will make it easier for the company to borrow money and finance its operations with debt, while a weak bargaining power will make it more difficult for the company to do so.
The other options are not as important as the bargaining power of a company with its suppliers.
- Option B: Demand for the product of the company is important, but it is not as important as the bargaining power of a company with its suppliers. A company with a strong demand for its products can still have a weak bargaining power with its suppliers, and vice versa.
- Option C: Technology adopted is important, but it is not as important as the bargaining power of a company with its suppliers. A company with a strong technology can still have a weak bargaining power with its suppliers, and vice versa.
- Option D: Adequate of the assets to meet any sudden spurt in demand is important, but it is not as important as the bargaining power of a company with its suppliers. A company with adequate assets to meet any sudden spurt in demand can still have a weak bargaining power with its suppliers, and vice versa.