--%>

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 : Next Generation Manufacturing Strategy

    This Assignment assesses the following module Learning Outcomes:1. Describe current production concepts and techniques in formulating a manufacturing strategy.2. Discuss the development and implementation of manufacturing strategies in the busi

  • Q : Problem on Legislature budget XY School

    XY School District has a large number of students in need of remedial instruction. The superintendent of XY School System can allocated her budget between purchasing X units of remedial instruction at a price of $2,000/unit and spending an amount ($Y) on all other sch

  • Q : Concepts of Economic system argues by

    For Economic system argues by Adam Smith relies heavily upon all the given concepts EXCEPT: (w) market expansion will be facilitated through capital accumulation. (x) prices will be driven to the lowest point at that production can ev

  • Q : Slope of a straight line is the ratio

    Explain the slope of a straight line is the ratio of the vertical change to horizontal change between any two points on the line?

  • Q : Summary of what can cause an increase

    Illustrate a summary of what can cause an increase in demand?

  • Q : Describe the equation of a linear

    Describe the equation of a linear relationship?

  • Q : Briefly state the pros and cons of

    Briefly state the pros and cons of Partnership?

  • Q : Resource market for economic capital

    Janet has loaned a start-up coffee house $50,000 and predicts to earn interest from her financial investment. In circular flow model this transaction is an illustration of: (1) An exchange of her saving for interest, via a resource market for the economic capital. (2)

  • Q : What are the determinants of demand

    What are the determinants of demand?

  • Q : Meaning of invisible hand according to

    Adam Smith’s opinion of an “invisible hand” powerfully implies the meaning that: (w) pursuit of individual self interest must be controlled. (x) most people lose sight of what’s good for society. (y) most peopl