--%>
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 : Fruit Question: Read the following

    Question: Read the following excerpts from the article "Fruit, veg costs surge' by Todd, Dagwell, published in the Herald on January 25th 2011 and answer questions below:

    Q : Introduction of the term Cost of equity

    Give a brief introduction of the term Cost of equity shares?

    		•
  • Q : Comparative Advantage of free trade

    According to the advocates of free trade and World Trade Organization, each and every country potentially advantages from trade liberalization and the lowering of tariffs since each and every country: (1) Has a comparative benefit in something. (2) Ga

    		•
  • Q : Internal factors which influencing the

    Write down the internal factors which influencing the capital structure?

    		•
  • Q : Competition is the essential despot of

    Evaluate and explain the statements: “Competition is the essential despot of the market economy”.

    		•
  • Q : What is American made in today’s global

    Illustrates how hard it is to define what is “American made” in today’s global economy?

    		•
  • Q : How do households dispose of their

    How do households dispose of their income?

    		•
  • Q : Determine relative price when two

    When the prices for doughnuts and croissants are $.50 and $1 correspondingly: (w) the opportunity cost for one doughnut is two croissants. (x) this is better to buy two doughnuts than one croissant. (y) one croissant will make Pierre twice as happy as one doughnut. (z

    		•
  • Q : Explain and give an illustration

    Explain and give an illustration of (a) the fallacy of composition; and (b) the “after this, therefore because of this” fallacy.  Why are cause-and-effect relationships difficult to isolate in the social sciences?

    		•
  • Q : Depreciation of the euro change the

    If the European euro declines in value (depreciates) in the foreign exchange market, would it be easier or harder for the French to sell their wine in the United States?  Suppose you were planning a trip to Paris.  How would the depreciation of the euro chan

    		•