Given below are two statements: One is labelled as Assertion (A) and the other is labelled as Reason (R):
Assertion (A): Capital structure is determined within debt capacity of a company and it should not be exceeded.
Reason (R): Debt capacity of a company depends on its ability to generate cash flows. It should generate cash enough to pay lenders' fixed charges and principal sums.
In the light of the above statements, choose the most appropriate answer from the options given below:
1
Both (A) and (R) are correct and (R) is the correct explanation of (A)
2
Both (A) and (R) are correct but (R) is NOT the correct explanation of (A)
3
(A) is correct but (R) is not correct
4
(A) is not correct but (R) is correct