7.4 Theories of Capital Structure
Net Income Approach
Net Operating Income Approach
Miller and Modigliani Approach
Criticisms of MM proposition
7.6 Terminal Questions
7.7 Answers to SAQs and TQs
The capital structure of a company...
Theories of Capital Structure 7.4.1 Net Income Approach 7.4.2 Net Operating Income Approach 7.4.3 Traditional Approach 7.4.4 Miller and Modigliani Approach 22.214.171.124 Criticism of Miller and Modigliani Approach 7.5 Summary Terminal Questions Answers to SAQs and TQs 7.1 Introduction The capital structure of...
liquidity position aspects.
Q4:- (*) Explain the need of debt-service coverage ratio.
Q5:- What is quick ratio? What does it signify?
Q8:- How is return on capital employed calculated? What is its significant?
Q6:- What do you mean by stock turnover ratio and gearing ratio?
Q7:- (*) Diagrammatically present...
economics ever since Modigliani and Miller (henceforth referred to as MM) showed in 1958 that given frictionless markets, homogeneous expectations, etc., the capital structure decision of the firm is irrelevant. This conclusion depends entirely on the assumptions made. By relaxing the assumptions and analysing...
the academic world for a number of years. There have been numerous works published on the subject which have presented such theories as the Modigliani and Miller Propositions, the Trade-off Theory, Pecking Order Theory, Signalling Theory and Agency Cost Theory to name a few. However, little research has...
It was concluded that Glee PLC is in need of a balanced capital structure, such as the one proposed by Modigliani and Miller (MM Theorem with tax), to help lower its cost of capital that will result in increasing the company’s value. Also, it was concluded that the Net...
11. Modigliani and Miller (MM) show that under a restrictive set of assumptions that a firm’s value is unaffected by its capital structure. Which of the following are not assumptions used by MM?
a. no brokerage costs, no taxes, and no bankruptcy costs
Incorrect. Modigliani and Miller (MM) reach...
with financial policies regarding paying cash dividend in the present or paying an increased dividend at a later stage. Whether to issue dividends, and what amount, is determined mainly on the basis of the company's unappropriated profit (excess cash) and influenced by the company's long-term earning power...
FIN467 Corporate Finance
Capital Structure Policy
1. (Jan 2007 semester Exam)
Analyse how the MM capital structure irrelevance is affected by the existence of the following:
• Corporate and Personal Taxes
• Financial Distress Costs
• Agency Costs
3. Literature review....................................................................................................... | 5 |
3.1. Modigliani and Miller - theory of irrelevance of capital structure of firm3.2. Capital structure - Static trade-off theory2.3. Capital structure - The Pecking Order...
The Capital Structure Question
MODIGLIANI – MILLER (MM): IRRELEVANCE OF CAPITAL STRUCTURE A. Firm Value and Capital Structure: • Modigliani-Miller (MM) Proposition I: The value of the firm is independent of the capital structure of the firm UNDER certain assumptions.
– 1st Arbitrage Proof in Finance:...
limit of financial leverage and when reaching the minimum level, it starts increasing with financial leverage.
* Capital structure theories are based on certain assumption to analysis in a single and convenient manner:
* • There are only two sources of funds used by a firm; debt...
Review on Capital Structure
Name: Tudor Gheorghiu
Student Id: 12254888
Theories on Capital Structure 3
Modigliani and Miller theory on capital structure 3
Other theories relating to the firm`s capital structure 4
Trade-off theory 4
Pecking order theory 5
Theories of Accounting 2
Public Interest Theory 2
Private Interest Theory 2
Regulatory Capture Theory 3
Is accounting Needed (GPFR)? 3
What does the financial department (accounts) do? 3
Why public disclosure became so serious? 4
Principal Agent Outlook 4
Agency Cost- Critical Reason...
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...