--%>
Assignment Help - homework help

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 : Define explicit cost and implicit cost

    Briefly describe the term explicit cost and implicit cost?

    		•
  • Q : U.S. exports create a demand for

    True or false? “U.S. exports create a demand for foreign currencies; foreign imports of U.S. goods generate supplies of foreign currencies.”  Explain.

    		•
  • Q : Describe Financial Leverage Briefly

    Briefly describe Financial Leverage? In what manner it is calculated? What does low or high financial leverage signify?

    		•
  • Q : How demand is influenced by price

    Describe how the demand for a good is influenced by the price of its associated goods. Give illustrations.

    		•
  • Q : Rise in participation of women in the

    Which two of the six reasons listed in the Last Word do you think are the most important in explaining the rise in participation of women in the workplace? Explain your reasoning.

    		•
  • Q : Requirement of building blocks for a

    Building blocks for a capitalist system consist of: (1) supplies and demands. (2) private property rights. (3) laissez-faire policies. (4) market-determined outputs and prices. (5) All of the above. Please guys hel

    		•
  • Q : Micro economics and macro economics

    Micro economics and macro economics:Economic theory can be widely divided into micro and macroeconomics. The word micro means small and macro means big.In microeconomics, we deal

    		•
  • Q : Historical process by Adam Smith of

    Writings on the historical process by Adam Smith of economic development do not comprise heavy reliance upon: (1) the development of property rights. (2) self interest. (3) divisions of labor in production processes. (4) innovations d

    		•
  • Q : Speculators activities over the long-run

    Over the long-run the speculators activities are tend to: (1) decrease the volatility of prices. (2) attract legal attention and result in imprisonment. (3) increase the level and volatility of prices both. (4) yield tremendous profits and raise costs

    		•
  • Q : Introduction of the term Control Factor

    Give a brief introduction of the term Control Factor?

    		•