--%>

Theories of capital structure

Write down the theories of capital structure?

E

Expert

Verified

Capital structure is a word that is referred to be the mix of sources from that the long term funds are needed for business intentions that are raised to improve the capital of the company. The theories that are involved in these are illustrated below:-

1) Net operating income (or NOI) :- this is an approach in that both value of the firm and weighted average cost are free of capital structure. Individual holding the debt and equity obtains the same cash flows without worrying about the taxes as they are not involved in it.

2) Traditional approach and Net income (NI) approach : - this is an approach in that both equity and cost of debt are independent of capital structure. The constituents that are involved in it are stable and do not depend on how much debt the firm is employing.

3) MM hypothesis with and devoid of corporate tax : - This approach tells that firm's value is independent of capital structure. The same return can be obtained by shareholders with the similar risk.

4) Miller’s hypothesis with personal and corporate taxes : - This approach provides significant advantage over equity. This ignores agency costs and bankruptcy.

5) Trade-off theory : - settlement and costs of leverage.

   Related Questions in Business Economics

  • Q : Analysis of US GDP and GDP growth rate

    You may use a calculator and MINITAB to conduct the necessary calculations for all questions.  Analysis of US GDP and GDP growth rate (1959-2004). The following variables can be retrieved from MIN

  • Q : Illustrate other than price many factors

    Illustrate other than price many factors determine the outcome?

  • Q : Relation of increased productivity by

    Discussion of a pin factory by Adam Smith focused upon the increased productivity related along with: (w) free international trade as per absolute advantage. (x) specialization and the division of labor. (y) free international trade as per comparative advantage. (z) certainty abo

  • Q : Laffer curve & Tax rate Question: Do

    Question: Do raising tax rates necessarily raise tax revenue? What factors affect how tax revenue changes when tax rates change? Using the 'human capital' investment model,

  • Q : Other things equal assumption helps

    Explain the statement: “The other things equal assumption helps isolate key economic relationships.”?

  • Q : Way to determine nature price of Adam

    “Natural price” by Adam Smith of a good was eventually determined through: (1) the amount of capital used within production in the short run. (2) long-run average costs of production, that Adam Smith believed to be the amo

  • Q : Examples and Applications of

    What are the Examples and Applications of International Trade?

  • Q : Single seller not sell at a price lower

    An individual seller within perfect competition will not sell at a price lower than the market price since: w) demand for the product will exceed supply.  x) the seller would begin a price war. y) the seller can sell any quantity she desires at the prevailing mar

  • Q : Fixed or managed exchange rate

    Question: A country with a fixed or managed exchange rate would consider i.___________________ its currency to gain competitive advantage vis-à-vis its trade

  • Q : Define the natural price by Adam Smith

    In words of Adam Smith, who theorized that the “natural price” of a good based most directly upon the: (1) wage rate and the relative amount of labor required to produce the good. (2) greater of the value of the good &ldqu