Theory of Capital Structure - A Review Stein Frydenberg£ April 29‚ 2004 ABSTRACT This paper is a review of the central theoretical literature. The most important arguments for what could determine capital structure is the pecking order theory and the static trade off theory. These two theories are reviewed‚ but neither of them provides a complete description of the situation and why some firms prefer equity and others debt under different circumstances. The paper is ended by a summary where the
Premium Corporate finance Capital structure Finance
Capital Structure Policy In the normal course of business‚ Columbia Sportswear’s financial position and results operations are subject to a variety of market risks. Those market risks include interest movements on borrowing and investment activities. As well as the volatility of currency exchange rate movement. The business is also affected by the general seasonal trends due to the nature of outdoor industry. In 2011‚ approximately 65% of the net sale and all of their profitability were realized
Premium Finance Investment Generally Accepted Accounting Principles
Exercise on Unit 2 – Theories of Capital Structure 1. Companies U & L are identical in all respect except that U is unlevered while L is levered. Company L has Rs. 20 Lacs of 8% debentures outstanding. Assume a. All MM assumptions are met b. Tax rate is 35% c. EBIT is Rs. 6 Lacs d. Equity capitalization rate of company U is 10% Find the following: a. Value of each firm according to MM approach b. Suppose Value of U is Rs. 25 Lacs and Value of L Rs. 35 Lacs. According
Premium Weighted average cost of capital Generally Accepted Accounting Principles Finance
During the course of operations of any company‚ once the capital budgeting decisions have been made and proposals selected‚ the most important question before the finance manager is to arrange sufficient funds to finance them. Funds are also required to keep existing projects going on and the company can raise funds required for investment either by increasing the owners’ claims or the creditors’ claims or both. The claims of the owners increases when the company raises the funds by issuing equity
Premium Finance
OPTIMAL CAPITAL STRUCTURE The optimal capital structure for a company should be the mix of equity‚ debt and hybrid instruments that minimizes the overall cost of funding‚ i.e. it should minimize the company’s weighted average cost of capital. In practice‚ however‚ it is not possible to specify this optimal capital structure exactly‚ for any individual company. It clearly makes sense to obtain funds at the lowest possible cost. In the long run‚ debt is cheaper than equity. However‚ when a company’s
Premium Finance Weighted average cost of capital Debt
D61/81594/2012 AGENGA BENTER ARWA D61/81595/2012 Section 1 1. Determine the drivers of capital Structure. The primary factors that influence a company’s capital-structure decision are: Company size Big firms are likely to be more leveraged than small firms. This is due to the huge capital assets that they posses Management style Management style ranges from aggressive to conservative. Conservative management is less inclined to use
Premium Finance Corporate finance Capital structure
CAPITAL STRUCTURE MANAGEMENT IN NEPAL (A CASE STUDY ON NABIL‚ NIBL‚ NEA‚ NTC & HGICL) Table of Contents: Recommendation I Viva- Voce Sheet II Declaration III Acknowledgement IV List of Figures V List of Tables VI Abbreviation VII CHAPTER I. INTRODUCTION Pg No. 1. Background of the study
Premium Finance Capital structure Corporate finance
Notes: Capital Structure by Kyung Hwan Shim University of New South Wales Australian School of Business School of Banking & Finance for FINS 1613 S1 2011 May 14‚ 2011 ∗ These notes are preliminary and under development. They are made available for FINS 1613 S1 2011 students only and may not be distributed or used without the author’s written consent. ∗ 1 Contents 1 Introduction 2 Financial Leverage 3 M&M Proposition I: Capital Structure Irrelevance 4 M&M Proposition II: Capital Structure
Premium Capital structure Finance Capital
prudent and sustainable funding sources‚ to add to their current funding mix. This is leading to a renewed interest in structured asset-backed financing solutions‚ designed to give treasurers the opportunity to rebalance and re-engineer their capital structures by offering well-priced‚ longer maturity alternatives. By securing a funding solution on the assets already owned by the company‚ or assets that will be essential to the business‚ it is possible to rebalance pricing models in a company’s favour
Premium Asset Balance sheet Investment
Capital Structure Theories Capital Structure Capital Structure is the proportion of debt‚ preference and equity capitals in the total financing of the firm’s assets. The main objective of financial management is to maximize the value of the equity shares of the firm. Given this objective‚ the firm has to choose that financing mix/capital structure that results in maximizing the wealth of the equity shareholders. Such a capital structure is called as the optimum capital structure. At the optimum
Premium Finance Weighted average cost of capital Generally Accepted Accounting Principles