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Impact of Capital Structure on Firm Value

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Impact of Capital Structure on Firm Value
Impact of Capital Structure on Firm Value
Financial Management Assignment

10/12/2010

Completed and Submitted by,
Aishwarya R. (06)
Anjana Pradeep (12)
Arijit Ghosh (18)
Gayathri M.A. (34)
Jyothi D. (44)
Lavanya P. (51)

CONTENTS
INTRODUCTION.......................................................3
COMPANIES CHOSEN..............................................3
LARSEN AND TOUBRO............................................3
Overview……………………………………………………………...3
Calculation of optimum D/E ratio............................5
Impact of capital structure on firm value................6
AMBUJA CEMENTS..................................................7
Overview..................................................................7
Calculation of optimum D/E ratio............................7
Impact of capital structure on firm value................8
WIPRO.....................................................................8
Overview.................................................................8
Calculation of optimum D/E ratio...........................9
Impact of capital structure on firm value...............10
CONCLUSION.........................................................10
REFERENCES...........................................................10

Introduction
This assignment deals with the impact of the capital structure, portrayed by the debt-to-equity ratio of the company, on the firm value as perceived by the market price of the share. The debt-to-equity ratio is a measure of the company’s financial leverage. The ratio varies from industry to industry and is also firm-specific. The graph of D/E ratio versus Weighted Average Cost of Capital is used to determine the optimal D/E ratio for each company.
Companies chosen: Larsen & Toubro, Ambuja cements and wipro. larsen and toubro oVERVIEW Larsen & Toubro (L&T) is a technology-driven USD 9.8 billion company that infuses


References: www.moneycontrol.com, BSEindia.com, Annual reports of L&T, WIPRO and AMBUJA CEMENTS.
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