Capital structure

Essay specific features

 

Issue:

Business

 

Written by:

Denis C

 

Date added:

December 30, 2014

 

Level:

University

 

Grade:

A

 

No of pages / words:

4 / 1082

 

Was viewed:

8441 times

 

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Essay content:

The firm's ratio of debt to total financing, 80% in this example, is referred to as the firm's leverage. The Modigliani-Miller theorem, proposed by Franco Modigliani and Merton Miller, forms the basis for modern thinking on capital structure, though it is generally viewed as a purely theoretical result since it assumes away many important factors in the capital structure decision...
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The theorem states that, in a perfect market, the value of a firm is unaffected by how that firm is financed. This result provides the base with which to examine real world reasons why capital structure is relevant, that is, a company's value is affected by the capital structure it employs. These other reasons include bankruptcy costs, agency costs and asymmetric information...
displayed 300 characters

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