Capital structure and theories
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Capital structure ppt
The document discusses capital structure, which is the mix of debt and equity used to finance a firm. The value of a firm is equal to the value of its debt plus the value of its equity. The optimal capital structure maximizes firm value by balancing the debt-equity ratio. Factors that influence the capital structure decision include business risk, taxes, financial flexibility, growth opportunities, and market conditions. Leverage increases risk for shareholders but also increases potential returns, as interest payments are tax deductible. Higher debt leads to greater financial risk.
Fm net income approach
This document discusses the net income approach to capital structure. It states that according to this approach, the value of a firm is based on the net income available to equity shareholders after paying interest on debt. It provides an example showing how the value of equity, debt, and the firm change as debt levels increase from 0% to 5% to 9% of the total capital. The weighted average cost of capital decreases and the total firm value increases as debt levels and leverage rise. However, the assumptions of the approach do not always hold in reality.
Capital structure
This document discusses capital structure and the factors considered when determining a firm's optimal capital structure. It discusses several approaches to determining the optimal capital structure, including:
1. The net income approach, which argues that changing capital structure affects overall cost of capital and firm value.
2. The net operating income/Modigliani-Miller approach, which argues that changing capital structure does not affect overall cost of capital or firm value.
3. The traditional/intermediate approach, which argues that increasing debt initially decreases overall cost of capital up to an optimal point, after which further increasing debt increases overall cost of capital.
The document analyzes the assumptions and implications of each approach. It also lists factors
Dividend policy ppt
The document discusses dividend policy and provides details about:
1. The meaning of dividend and dividend policy, and factors that affect dividend policy such as ownership considerations, nature of business, and investment opportunities.
2. Different types of dividends including cash dividend, stock dividend, property dividend, and debenture dividend.
3. Dividend policies of 5 major Indian IT companies - Tata Consultancy Services, Wipro, Infosys, HCL Technologies, and Larsen & Toubro Infotech - and their dividend yields for the fiscal year 2013.
Modigliani and miller approach
Modigliani and Miller initially developed their capital structure approach in 1958 without considering taxes. They argued that a firm's value and cost of capital are independent of its capital structure. In 1963, they revised their approach to include taxes. When taxes are considered, firm value increases with leverage as interest expenses are tax deductible, creating a tax shield. The value of a levered firm exceeds an unlevered firm by the amount of debt multiplied by the tax rate.
5 capital structure-theories
This document discusses capital structure and various capital structure theories. It begins by defining capital structure as the mix of owned and borrowed capital used to finance a company's assets. The key considerations in planning capital structure are return, cost, risk, control, flexibility, and capacity. It then covers four capital structure theories - net income approach, net operating income approach, Modigliani-Miller model, and traditional approach. The net income approach proposes that firm value increases with more debt due to lower costs. The net operating income approach argues firm value is independent of capital structure. The Modigliani-Miller model supports the net operating income view. The traditional approach finds an optimal capital structure that minimizes costs.
Modigiliani miller
The document summarizes the Modigliani-Miller approach to capital structure. Some key points:
1) According to MM, leverage will not affect a firm's value or cost of capital. There is no optimal capital structure.
2) The cost of equity will rise to exactly offset any savings from low-cost debt, keeping the weighted average cost of capital constant regardless of capital structure.
3) MM relies on the concept of arbitrage to argue that investors can substitute "homemade leverage" to achieve the same returns, keeping firm values and costs constant across different structures.
4) MM later incorporated taxes, recognizing debt provides a tax shield that lowers the weighted average cost of capital
Capital structure ppt
The document discusses capital structure and its theories. It defines capital structure as the proportion of long-term debt and equity used to finance a company's assets. A company's capital structure determines its risk and cost of capital. There are several theories on capital structure including the net income, net operating income, traditional, and Modigliani-Miller approaches. The optimal capital structure balances minimum costs and risks. Factors like tax rates, control, flexibility, and legal requirements influence a company's choice of capital structure.
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Capital structure ppt
The document discusses capital structure, which is the mix of debt and equity used to finance a firm. The value of a firm is equal to the value of its debt plus the value of its equity. The optimal capital structure maximizes firm value by balancing the debt-equity ratio. Factors that influence the capital structure decision include business risk, taxes, financial flexibility, growth opportunities, and market conditions. Leverage increases risk for shareholders but also increases potential returns, as interest payments are tax deductible. Higher debt leads to greater financial risk.
Fm net income approach
This document discusses the net income approach to capital structure. It states that according to this approach, the value of a firm is based on the net income available to equity shareholders after paying interest on debt. It provides an example showing how the value of equity, debt, and the firm change as debt levels increase from 0% to 5% to 9% of the total capital. The weighted average cost of capital decreases and the total firm value increases as debt levels and leverage rise. However, the assumptions of the approach do not always hold in reality.
Capital structure
This document discusses capital structure and the factors considered when determining a firm's optimal capital structure. It discusses several approaches to determining the optimal capital structure, including:
1. The net income approach, which argues that changing capital structure affects overall cost of capital and firm value.
2. The net operating income/Modigliani-Miller approach, which argues that changing capital structure does not affect overall cost of capital or firm value.
3. The traditional/intermediate approach, which argues that increasing debt initially decreases overall cost of capital up to an optimal point, after which further increasing debt increases overall cost of capital.
The document analyzes the assumptions and implications of each approach. It also lists factors
Dividend policy ppt
The document discusses dividend policy and provides details about:
1. The meaning of dividend and dividend policy, and factors that affect dividend policy such as ownership considerations, nature of business, and investment opportunities.
2. Different types of dividends including cash dividend, stock dividend, property dividend, and debenture dividend.
3. Dividend policies of 5 major Indian IT companies - Tata Consultancy Services, Wipro, Infosys, HCL Technologies, and Larsen & Toubro Infotech - and their dividend yields for the fiscal year 2013.
Modigliani and miller approach
Modigliani and Miller initially developed their capital structure approach in 1958 without considering taxes. They argued that a firm's value and cost of capital are independent of its capital structure. In 1963, they revised their approach to include taxes. When taxes are considered, firm value increases with leverage as interest expenses are tax deductible, creating a tax shield. The value of a levered firm exceeds an unlevered firm by the amount of debt multiplied by the tax rate.
5 capital structure-theories
This document discusses capital structure and various capital structure theories. It begins by defining capital structure as the mix of owned and borrowed capital used to finance a company's assets. The key considerations in planning capital structure are return, cost, risk, control, flexibility, and capacity. It then covers four capital structure theories - net income approach, net operating income approach, Modigliani-Miller model, and traditional approach. The net income approach proposes that firm value increases with more debt due to lower costs. The net operating income approach argues firm value is independent of capital structure. The Modigliani-Miller model supports the net operating income view. The traditional approach finds an optimal capital structure that minimizes costs.
Modigiliani miller
The document summarizes the Modigliani-Miller approach to capital structure. Some key points:
1) According to MM, leverage will not affect a firm's value or cost of capital. There is no optimal capital structure.
2) The cost of equity will rise to exactly offset any savings from low-cost debt, keeping the weighted average cost of capital constant regardless of capital structure.
3) MM relies on the concept of arbitrage to argue that investors can substitute "homemade leverage" to achieve the same returns, keeping firm values and costs constant across different structures.
4) MM later incorporated taxes, recognizing debt provides a tax shield that lowers the weighted average cost of capital
Capital structure ppt
The document discusses capital structure and its theories. It defines capital structure as the proportion of long-term debt and equity used to finance a company's assets. A company's capital structure determines its risk and cost of capital. There are several theories on capital structure including the net income, net operating income, traditional, and Modigliani-Miller approaches. The optimal capital structure balances minimum costs and risks. Factors like tax rates, control, flexibility, and legal requirements influence a company's choice of capital structure.
Cost of Debt Capital problems kd
Cost of debt (i.e, debentures and long term debt) is defined in terms of the required rate of return that the debt, investment must yield to protect the shareholders interest. Hence, Cost of debt is contractual interest rate, adjusted further for the tax liability of the firm.
Cost of Debt Debentures are issued at par, at a premium and discount. Cost of Redeemable Debt
Capital structure
Capital structure refers to how a corporation finances its assets through a combination of equity, debt, or securities. A firm's capital structure composition includes liabilities like debt and equity shares. Equity shares make shareholders owners but do not burden the company, while debt provides tax advantages but requires regular payments. An optimal capital structure considers advantages and disadvantages of different sources to maximize utilization of resources.
Dividend decision theories
This document discusses several theories of dividend decision-making:
- Walter's model states that share price is the sum of dividends and retained earnings discounted by the cost of equity. It suggests retaining earnings if return on investment exceeds the cost of equity.
- Gordon's model similarly values shares based on dividends but also incorporates the growth rate of earnings from retained profits. It argues investors prefer dividends over capital gains.
- The Miller-Modigliani hypothesis asserts that under perfect capital markets, dividend policy does not affect share price, as investors will value future cash flows regardless of payout method.
Weighted average cost of capital
Weighted Average Cost Of Capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is proportionately weighted.
Valuation of securities
* Risk free rate (Rf) = 3%
* Expected market return (Rm) = 9%
* Beta (β) of RIL = 1.9
* Risk premium (Rm - Rf) = 9% - 3% = 6%
* Using the CAPM formula:
Ki = Rf + β(Rm - Rf)
= 3% + 1.9(6%)
= 3% + 11.4%
= 14.4%
Therefore, according to the CAPM, the expected rate of return for RIL shares is 14.4%
Capital budgeting
The document discusses capital budgeting, which refers to long-term planning for proposed capital expenditures and their financing. Capital budgeting involves a firm's formal process of acquiring and investing in capital assets. It deals with evaluating long-term investment projects and allocating scarce financial resources among market opportunities. The nature of capital budgeting is that it involves huge investments in fixed assets for long terms that cannot be easily reversed or withdrawn. It is an important tool for financial management and business success depends on how resources are utilized through capital budgeting.
Capital structure theories
The document discusses capital structure and various capital structure theories. It defines capital structure as the mix of owned and borrowed capital used to finance a firm's assets. The optimal capital structure maximizes firm value by lowering the overall cost of capital. Several capital structure theories are examined, including the net income approach, net operating income approach, and traditional approach. The net income approach argues firm value increases with more debt due to lower costs. The net operating income approach argues firm value is independent of capital structure. The traditional approach finds an optimal capital structure where costs are minimized.
Risk analysis in capital budgeting
The document discusses various techniques for handling risk in capital budgeting decisions, including sensitivity analysis, simulation, and adjusting discount rates. Sensitivity analysis involves analyzing how changes in variables impact NPV or IRR. Simulation uses probability distributions and random numbers to estimate outcomes. Risk-adjusted discount rates increase the discount rate used based on a project's perceived risk level.
Capital structure
capital structure
,
goals and significance of capital structure
,
target capital structure
,
does capital structure matter
,
modigliani and miller theory
Capital Structure Theories
The document discusses capital structure, which refers to the mix of debt and equity used by a company to finance its long-term operations. It examines several factors that influence a company's capital structure choices as well as different theories about optimal capital structure. The Net Income Theory proposes that firms can maximize value and minimize cost of capital by using as much debt as possible. The Net Operating Income Theory argues capital structure is irrelevant to firm value and cost of capital. The Traditional Theory suggests an optimal debt-equity mix exists. Finally, the Modigliani-Miller Theory states that under certain assumptions, capital structure does not impact firm value or cost of capital, though when taxes are considered, more debt can increase value.
Dividend theories
The document discusses several theories on corporate dividend policies:
1. Dividend relevance theories argue that a firm's dividend policy impacts its value. Walter's and Gordon's models show how value is determined based on factors like earnings, dividends, growth rates, and costs of capital.
2. Dividend irrelevance theories, proposed by Modigliani and Miller, state that a firm's value depends only on its investment policy, not its dividend policy.
3. The bird-in-hand theory suggests that even in situations of equal growth rates and costs of capital, investors prefer dividends in-hand to future capital gains due to uncertainty.
Cost of capital, Cost of debt, Cost of equity, Cost of preference shares, Wei...
Cost of capital, Cost of debt, Cost of equity, Cost of preference shares, Wei...Dayana Mastura FCCA CA
This document discusses weighted average cost of capital (WACC) which is a calculation of a firm's cost of capital considering the costs of the different components of the firm's capital structure (debt, equity, preference shares). It defines WACC and explains its importance as the minimum return a firm needs to earn on new projects/investments to break even. The document also outlines how to calculate WACC and the costs of each capital component (cost of equity using CAPM, cost of debt, cost of preference shares). It discusses how WACC is used as a benchmark for projects, in determining leverage limits, for valuation, and in discounting cash flows in a DCF analysis.Objective and Scope of financial management B.com, M.com
This document provides an introduction to financial management. It defines financial management as the activity of acquiring funds at minimum cost and utilizing them optimally to generate returns. It discusses the meaning, functions, nature, scope and objectives of financial management. The key objectives of financial management discussed are profit maximization and wealth maximization. The document also outlines arguments for and against each objective.
Capital structure
The document discusses various aspects of capital structure including definitions, key terms, theories, and principles. It defines capital structure as the mix of debt and equity used by a company to finance its overall operations and long-term needs. Several theories of capital structure are described, including the net income approach, net operating income approach, and Modigliani & Miller approach. Factors that determine an optimal capital structure are discussed, including costs, risks, flexibility, and control. Formulas for calculating financial break-even point, point of indifference, and capital gearing ratio are provided. Examples are given to illustrate how to apply the concepts.
Types of Insurance
This document provides an overview of the many different types of insurance. It lists and describes several major categories of insurance including life insurance, home insurance, property insurance, auto insurance, and health insurance. Within each category, it outlines specific types of insurance such as term life, whole life, and annuities for life insurance or fire, flood, and earthquake insurance for property insurance. The document serves as an exhaustive reference for the various risks that can be insured against.
Risk in capital budgeting
Discusses various risks involved in capital budgeting - useful to the students of under graduate, post graduate and professional course students in finance and management
Capital Structure Theories
Capital structure, Net Income approach, Net Operating approach, Modigliani – Miller Model, Traditional Approach
Net operating income approach
Watch out full video on youtube-
https://youtu.be/Suf9NAMW6Jg
Net Operating Income Approach
It proposes that -
Capital structure does not matter in determining the value of firm
It suggests that the value of firm remains same and is not affected by the change in debt composition of financing
Increase in debt composition results in increased risk perception by investors
Thus, firm appears to be more risky with more debt as capital which results in higher required rate of return by investors
The weighted average cost of capital and market value of firm remains same with increased cost of equity
Assumptions -
There are only two sources of financing – Debt & Equity
Value of equity is calculated by deducting the value of debt from total value of firm
Value of firm is EBIT / Overall cost of capital
WACC remains constant and with an increase in debt, the cost of equity increases
Dividend payout ratio is 1
No taxes & No retained earning
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Subscribe to DevTech Finance
Cost of capital
The document discusses the cost of capital, which is the rate of return a firm requires to increase its market value. It has three components: return at zero risk, business risk premium, and financial risk premium. Cost of capital is classified as historical vs future, specific vs composite, average vs marginal, and explicit vs implicit. Specific costs include cost of debt, preference shares, equity shares, and retained earnings. Composite cost is the weighted average cost of different sources. Cost of capital is computed using book value weights or market value weights to determine the weighted average cost of capital (WACC).
Net income approach
The Net Income (NI) approach proposes that a firm's value increases as it takes on more debt financing due to debt generally being a cheaper source of capital than equity. According to the NI approach, the costs of debt and equity remain constant regardless of capital structure, so the overall cost of capital declines as debt levels rise. However, the NI approach assumes unrealistic conditions like taxes being ignored and that more debt does not affect investor risk perceptions. It implies the maximum firm value occurs with 100% debt financing.
Captial Structure Theories.pptx
The document discusses different theories of capital structure:
1) Net Income approach argues that increasing debt lowers cost of capital and increases firm value.
2) Net Operating Income approach argues that capital structure does not affect cost of capital or firm value.
3) Modigliani-Miller approach agrees with NOI when there are no taxes, but recognizes that capital structure affects cost of capital and firm value when taxes exist due to interest tax deductibility.
4) The Traditional approach finds an optimal capital structure that minimizes weighted average cost of capital and maximizes firm value.
Captial Structure Theories.pdf
The document discusses different theories of capital structure:
1. The traditional approach argues that an optimal capital structure exists where the weighted average cost of capital (WACC) is minimized, maximizing firm value.
2. The net income (NI) approach argues that greater debt use lowers WACC and increases firm value, while the net operating income (NOI) approach argues capital structure does not impact WACC or value.
3. Modigliani-Miller's first proposition agrees with NOI when there are no corporate taxes, but their second proposition recognizes capital structure impacts WACC and value when taxes exist due to interest tax deductibility.
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Cost of Debt Capital problems kd
Cost of debt (i.e, debentures and long term debt) is defined in terms of the required rate of return that the debt, investment must yield to protect the shareholders interest. Hence, Cost of debt is contractual interest rate, adjusted further for the tax liability of the firm.
Cost of Debt Debentures are issued at par, at a premium and discount. Cost of Redeemable Debt
Capital structure
Capital structure refers to how a corporation finances its assets through a combination of equity, debt, or securities. A firm's capital structure composition includes liabilities like debt and equity shares. Equity shares make shareholders owners but do not burden the company, while debt provides tax advantages but requires regular payments. An optimal capital structure considers advantages and disadvantages of different sources to maximize utilization of resources.
Dividend decision theories
This document discusses several theories of dividend decision-making:
- Walter's model states that share price is the sum of dividends and retained earnings discounted by the cost of equity. It suggests retaining earnings if return on investment exceeds the cost of equity.
- Gordon's model similarly values shares based on dividends but also incorporates the growth rate of earnings from retained profits. It argues investors prefer dividends over capital gains.
- The Miller-Modigliani hypothesis asserts that under perfect capital markets, dividend policy does not affect share price, as investors will value future cash flows regardless of payout method.
Weighted average cost of capital
Weighted Average Cost Of Capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is proportionately weighted.
Valuation of securities
* Risk free rate (Rf) = 3%
* Expected market return (Rm) = 9%
* Beta (β) of RIL = 1.9
* Risk premium (Rm - Rf) = 9% - 3% = 6%
* Using the CAPM formula:
Ki = Rf + β(Rm - Rf)
= 3% + 1.9(6%)
= 3% + 11.4%
= 14.4%
Therefore, according to the CAPM, the expected rate of return for RIL shares is 14.4%
Capital budgeting
The document discusses capital budgeting, which refers to long-term planning for proposed capital expenditures and their financing. Capital budgeting involves a firm's formal process of acquiring and investing in capital assets. It deals with evaluating long-term investment projects and allocating scarce financial resources among market opportunities. The nature of capital budgeting is that it involves huge investments in fixed assets for long terms that cannot be easily reversed or withdrawn. It is an important tool for financial management and business success depends on how resources are utilized through capital budgeting.
Capital structure theories
The document discusses capital structure and various capital structure theories. It defines capital structure as the mix of owned and borrowed capital used to finance a firm's assets. The optimal capital structure maximizes firm value by lowering the overall cost of capital. Several capital structure theories are examined, including the net income approach, net operating income approach, and traditional approach. The net income approach argues firm value increases with more debt due to lower costs. The net operating income approach argues firm value is independent of capital structure. The traditional approach finds an optimal capital structure where costs are minimized.
Risk analysis in capital budgeting
The document discusses various techniques for handling risk in capital budgeting decisions, including sensitivity analysis, simulation, and adjusting discount rates. Sensitivity analysis involves analyzing how changes in variables impact NPV or IRR. Simulation uses probability distributions and random numbers to estimate outcomes. Risk-adjusted discount rates increase the discount rate used based on a project's perceived risk level.
Capital structure
capital structure
,
goals and significance of capital structure
,
target capital structure
,
does capital structure matter
,
modigliani and miller theory
Capital Structure Theories
The document discusses capital structure, which refers to the mix of debt and equity used by a company to finance its long-term operations. It examines several factors that influence a company's capital structure choices as well as different theories about optimal capital structure. The Net Income Theory proposes that firms can maximize value and minimize cost of capital by using as much debt as possible. The Net Operating Income Theory argues capital structure is irrelevant to firm value and cost of capital. The Traditional Theory suggests an optimal debt-equity mix exists. Finally, the Modigliani-Miller Theory states that under certain assumptions, capital structure does not impact firm value or cost of capital, though when taxes are considered, more debt can increase value.
Dividend theories
The document discusses several theories on corporate dividend policies:
1. Dividend relevance theories argue that a firm's dividend policy impacts its value. Walter's and Gordon's models show how value is determined based on factors like earnings, dividends, growth rates, and costs of capital.
2. Dividend irrelevance theories, proposed by Modigliani and Miller, state that a firm's value depends only on its investment policy, not its dividend policy.
3. The bird-in-hand theory suggests that even in situations of equal growth rates and costs of capital, investors prefer dividends in-hand to future capital gains due to uncertainty.
Cost of capital, Cost of debt, Cost of equity, Cost of preference shares, Wei...
Cost of capital, Cost of debt, Cost of equity, Cost of preference shares, Wei...Dayana Mastura FCCA CA
This document discusses weighted average cost of capital (WACC) which is a calculation of a firm's cost of capital considering the costs of the different components of the firm's capital structure (debt, equity, preference shares). It defines WACC and explains its importance as the minimum return a firm needs to earn on new projects/investments to break even. The document also outlines how to calculate WACC and the costs of each capital component (cost of equity using CAPM, cost of debt, cost of preference shares). It discusses how WACC is used as a benchmark for projects, in determining leverage limits, for valuation, and in discounting cash flows in a DCF analysis.Objective and Scope of financial management B.com, M.com
This document provides an introduction to financial management. It defines financial management as the activity of acquiring funds at minimum cost and utilizing them optimally to generate returns. It discusses the meaning, functions, nature, scope and objectives of financial management. The key objectives of financial management discussed are profit maximization and wealth maximization. The document also outlines arguments for and against each objective.
Capital structure
The document discusses various aspects of capital structure including definitions, key terms, theories, and principles. It defines capital structure as the mix of debt and equity used by a company to finance its overall operations and long-term needs. Several theories of capital structure are described, including the net income approach, net operating income approach, and Modigliani & Miller approach. Factors that determine an optimal capital structure are discussed, including costs, risks, flexibility, and control. Formulas for calculating financial break-even point, point of indifference, and capital gearing ratio are provided. Examples are given to illustrate how to apply the concepts.
Types of Insurance
This document provides an overview of the many different types of insurance. It lists and describes several major categories of insurance including life insurance, home insurance, property insurance, auto insurance, and health insurance. Within each category, it outlines specific types of insurance such as term life, whole life, and annuities for life insurance or fire, flood, and earthquake insurance for property insurance. The document serves as an exhaustive reference for the various risks that can be insured against.
Risk in capital budgeting
Discusses various risks involved in capital budgeting - useful to the students of under graduate, post graduate and professional course students in finance and management
Capital Structure Theories
Capital structure, Net Income approach, Net Operating approach, Modigliani – Miller Model, Traditional Approach
Net operating income approach
Watch out full video on youtube-
https://youtu.be/Suf9NAMW6Jg
Net Operating Income Approach
It proposes that -
Capital structure does not matter in determining the value of firm
It suggests that the value of firm remains same and is not affected by the change in debt composition of financing
Increase in debt composition results in increased risk perception by investors
Thus, firm appears to be more risky with more debt as capital which results in higher required rate of return by investors
The weighted average cost of capital and market value of firm remains same with increased cost of equity
Assumptions -
There are only two sources of financing – Debt & Equity
Value of equity is calculated by deducting the value of debt from total value of firm
Value of firm is EBIT / Overall cost of capital
WACC remains constant and with an increase in debt, the cost of equity increases
Dividend payout ratio is 1
No taxes & No retained earning
Thank you for Watching
Subscribe to DevTech Finance
Cost of capital
The document discusses the cost of capital, which is the rate of return a firm requires to increase its market value. It has three components: return at zero risk, business risk premium, and financial risk premium. Cost of capital is classified as historical vs future, specific vs composite, average vs marginal, and explicit vs implicit. Specific costs include cost of debt, preference shares, equity shares, and retained earnings. Composite cost is the weighted average cost of different sources. Cost of capital is computed using book value weights or market value weights to determine the weighted average cost of capital (WACC).
Net income approach
The Net Income (NI) approach proposes that a firm's value increases as it takes on more debt financing due to debt generally being a cheaper source of capital than equity. According to the NI approach, the costs of debt and equity remain constant regardless of capital structure, so the overall cost of capital declines as debt levels rise. However, the NI approach assumes unrealistic conditions like taxes being ignored and that more debt does not affect investor risk perceptions. It implies the maximum firm value occurs with 100% debt financing.
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Captial Structure Theories.pptx
The document discusses different theories of capital structure:
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2) Net Operating Income approach argues that capital structure does not affect cost of capital or firm value.
3) Modigliani-Miller approach agrees with NOI when there are no taxes, but recognizes that capital structure affects cost of capital and firm value when taxes exist due to interest tax deductibility.
4) The Traditional approach finds an optimal capital structure that minimizes weighted average cost of capital and maximizes firm value.
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The document discusses different theories of capital structure:
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This document provides an overview of capital structure concepts and theories. It defines capital structure as the mix of owned and borrowed capital used to finance a company's assets. Several capital structure theories are described, including the Net Income Approach, Net Operating Income Approach, Modigliani-Miller Approach, and Traditional Approach. The Net Income Approach suggests that increasing debt lowers cost of capital and increases firm value until business risk increases. The Net Operating Income and Modigliani-Miller Approaches argue that capital structure does not affect firm value. The Traditional Approach proposes an optimal capital structure that minimizes cost of capital and maximizes firm value.
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The document discusses capital structure concepts and theories. It defines capital structure as the mix of owned and borrowed capital used to finance a firm's assets. There are several theories that attempt to explain the relationship between capital structure, cost of capital, and firm value. The Net Income approach suggests firm value increases as debt rises since interest is tax deductible. The Net Operating Income approach argues firm value is independent of capital structure. Modigliani-Miller's theory also initially supports this, but recognizes value increases with debt when taxes are considered. The Traditional approach finds an optimal capital structure that minimizes the weighted average cost of capital and maximizes firm value.
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This document discusses various theories of capital structure, which is the mix of debt and equity used by a company to finance its operations and growth. It describes the net income approach, which argues that firm value increases with more debt due to lower costs. The net operating income approach argues that firm value is independent of capital structure. The traditional approach finds an optimal capital structure that balances these views. Modigliani-Miller theory also argues that firm value is independent of capital structure under certain assumptions. The document provides formulas and diagrams used in each theory.
Theory of Capital Structure Financial management pptx
The document discusses various theories of capital structure including the Net Income Approach, Net Operating Income Approach, Modigliani-Miller Approach, and Traditional Approach. The key points are:
1) The Net Income Approach argues that increasing debt decreases the cost of capital and increases firm value.
2) The Net Operating Income Approach argues that capital structure does not affect firm value but increasing debt raises the cost of equity.
3) Modigliani-Miller found that without taxes, capital structure does not affect value but with taxes, debt can increase value through tax shields.
4) The Traditional Approach finds an optimal capital structure that maximizes value by balancing the costs and benefits of debt and equity
Capital structure defenition
The document discusses capital structure, which refers to the proportion of debt and equity used to finance a company's assets. An optimal capital structure maximizes share price value and minimizes cost of capital. Factors that affect a company's capital structure include financial risk, growth opportunities, cash flows, and tax policies. Several theories on capital structure are presented, including the Net Income, Net Operating Income, and Modigliani-Miller approaches.
Capital structure defenition
The document discusses capital structure, which refers to the proportion of debt and equity used to finance a company's assets. An optimal capital structure maximizes share price value and minimizes cost of capital. Factors that affect a company's capital structure include financial risk, growth opportunities, and tax policies. Several theories on capital structure are presented, including the Net Income, Net Operating Income, and Modigliani-Miller approaches.
Capitalstructuredefenition 100426194038-phpapp02
The document discusses capital structure, which refers to the proportion of debt, preference shares, and equity on a company's balance sheet. It defines capital structure and optimal capital structure, which is when market value per share is maximum and cost of capital is minimum. An optimum mix of debt and equity can improve a firm's value and lower its weighted average cost of capital. The capital structure is influenced by both internal factors like financial leverage and growth, and external factors like industry norms and interest rates. Different theories on capital structure are presented, including the net income, net operating income, and Modigliani-Miller approaches. The assumptions behind each theory are also outlined.
Financial management ppt
This document provides an overview of capital structure theories, specifically the Modigliani-Miller (M&M) hypothesis. It discusses the M&M propositions that the value of a firm is independent of its capital structure, and that the cost of equity increases with leverage in a way that offsets the benefits of debt. It also notes that M&M later recognized that tax deductibility of interest payments implies an optimal capital structure with more debt. The document outlines the assumptions of the M&M model and criticisms of its assumptions regarding perfect markets, transaction costs, and taxes.
Capital structure theories.pptx
The document discusses various capital structure theories including the net income approach, traditional approach, and irrelevance theories like the net operating income approach and MM approach. It provides definitions of key terms like capital structure and optimal capital structure. It also lists the assumptions and formulas used in different theories. Several factors that determine a firm's capital structure are outlined along with examples of calculating a firm's value and WACC under different approaches.
capital_structure.pptx
Capital structure
Meaning & definition
Importance
Determinants
Approaches
Net income approach
Net operating income approach
Traditional approach
Modiglini Miller approach
DEEPAK, DEEPAK KUMAR N, JAIKANTH (FA)
- Capital structure refers to the proportion of different types of capital (equity, debt, preference shares) that make up a company's total financing. It influences the value of a firm.
- Three main approaches to capital structure are the net income approach, net operating income approach, and traditional approach. The Modigliani-Miller approach argues that the value and cost of capital of a firm are unaffected by its capital structure under certain assumptions.
- The net income approach suggests that increasing debt lowers the weighted average cost of capital and increases firm value. The net operating income approach argues that leverage does not affect total firm value. The traditional approach proposes an optimal debt-equity mix that maximizes firm value.
capital_structure.ppt
This document discusses theories of capital structure and defines key terms. It presents several assumptions of capital structure theories, including that a firm has equity and debt as its only funding sources. It also defines notations used like market values of equity and debt. The net income approach and net operating income approach to capital structure are described. The net income approach states that a firm's value is affected by its debt-equity mix, while the net operating income approach says value depends only on profits. Traditional and Modigliani-Miller theories are also summarized. Modigliani-Miller argues leverage has no effect on value through an arbitrage process and the substitutability of personal and corporate leverage.
Financing-Decisions-Capital-Structure-Quick Revision for Exam.docx
The document discusses capital structure theories and designing an optimal capital structure. It covers several key points:
1. It defines capital structure as the combination of capital from different sources of finance like equity, preference shares, and debt. An optimal structure considers control, risk, and cost.
2. It discusses several capital structure theories - the Net Income Approach, Traditional Approach, Net Operating Income Approach, Modigliani-Miller Approach, and others. These theories examine the relationship between capital structure, cost of capital, and firm value.
3. Factors for designing an optimal capital structure include minimizing overall cost of capital while maximizing firm value. Theories provide guidance but balancing objectives is challenging.
Capital structure theories - NI Approach, NOI approach & MM Approach
Capital structure theories - NI Approach, NOI approach & MM Approach. Meaning of capital structure , Features of An Appropriate Capital Structure, Determinants of Capital Structure, Planning the Capital Structure Important Considerations,
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原版一模一样【微信：741003700 】【(uvic毕业证书)加拿大维多利亚大学毕业证成绩单】【微信：741003700 】学位证，留信认证（真实可查，永久存档）原件一模一样纸张工艺/offer、雅思、外壳等材料/诚信可靠,可直接看成品样本，帮您解决无法毕业带来的各种难题！外壳，原版制作，诚信可靠，可直接看成品样本。行业标杆！精益求精，诚心合作，真诚制作！多年品质 ,按需精细制作，24小时接单,全套进口原装设备。十五年致力于帮助留学生解决难题，包您满意。
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留信网认证的作用:
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2:同时对留学生所学专业登记给予评定
3:国家专业人才认证中心颁发入库证书
4:这个认证书并且可以归档倒地方
5:凡事获得留信网入网的信息将会逐步更新到个人身份内，将在公安局网内查询个人身份证信息后，同步读取人才网入库信息
6:个人职称评审加20分
7:个人信誉贷款加10分
8:在国家人才网主办的国家网络招聘大会中纳入资料，供国家高端企业选择人才
办理(uvic毕业证书)加拿大维多利亚大学毕业证【微信：741003700 】外观非常简单，由纸质材料制成，上面印有校徽、校名、毕业生姓名、专业等信息。
办理(uvic毕业证书)加拿大维多利亚大学毕业证【微信：741003700 】格式相对统一，各专业都有相应的模板。通常包括以下部分：
校徽：象征着学校的荣誉和传承。
校名:学校英文全称
授予学位：本部分将注明获得的具体学位名称。
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其他信息：根据不同的专业和学位，可能会有一些特定的信息或章节。
办理(uvic毕业证书)加拿大维多利亚大学毕业证【微信：741003700 】价值很高，需要妥善保管。一般来说，应放置在安全、干燥、防潮的地方，避免长时间暴露在阳光下。如需使用，最好使用复印件而不是原件，以免丢失。
综上所述，办理(uvic毕业证书)加拿大维多利亚大学毕业证【微信：741003700 】是证明身份和学历的高价值文件。外观简单庄重，格式统一，包括重要的个人信息和发布日期。对持有人来说，妥善保管是非常重要的。
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原版办【微信号:95270640】【格罗宁根大学毕业证(RUG毕业证书)】【微信号:95270640】《成绩单、外壳、雅思、offer、真实留信官方学历认证（永久存档/真实可查）》采用学校原版纸张、特殊工艺完全按照原版一比一制作（包括：隐形水印，阴影底纹，钢印LOGO烫金烫银，LOGO烫金烫银复合重叠，文字图案浮雕，激光镭射，紫外荧光，温感，复印防伪）行业标杆！精益求精，诚心合作，真诚制作！多年品质 ,按需精细制作，24小时接单,全套进口原装设备，十五年致力于帮助留学生解决难题，业务范围有加拿大、英国、澳洲、韩国、美国、新加坡，新西兰等学历材料，包您满意。
【我们承诺采用的是学校原版纸张（纸质、底色、纹路）我们拥有全套进口原装设备，特殊工艺都是采用不同机器制作，仿真度基本可以达到100%，所有工艺效果都可提前给客户展示，不满意可以根据客户要求进行调整，直到满意为止！】
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二、回国进私企、外企、自己做生意的情况，这些单位是不查询毕业证真伪的，而且国内没有渠道去查询国外文凭的真假，也不需要提供真实教育部认证。鉴于此，办理一份毕业证【微信号95270640】即可
三、进国企，银行，事业单位，考公务员等等，这些单位是必需要提供真实教育部认证的，办理教育部认证所需资料众多且烦琐，所有材料您都必须提供原件，我们凭借丰富的经验，快捷的绿色通道帮您快速整合材料，让您少走弯路。
留信网认证的作用:
1:该专业认证可证明留学生真实身份
2:同时对留学生所学专业登记给予评定
3:国家专业人才认证中心颁发入库证书
4:这个认证书并且可以归档倒地方
5:凡事获得留信网入网的信息将会逐步更新到个人身份内，将在公安局网内查询个人身份证信息后，同步读取人才网入库信息
6:个人职称评审加20分
7:个人信誉贷款加10分
8:在国家人才网主办的国家网络招聘大会中纳入资料，供国家高端企业选择人才
留信网服务项目：
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2、国（境）学习人员提供就业推荐信服务
3、留学人员区块链存储服务
【关于价格问题（保证一手价格）】
我们所定的价格是非常合理的，而且我们现在做得单子大多数都是代理和回头客户介绍的所以一般现在有新的单子 我给客户的都是第一手的代理价格，因为我想坦诚对待大家 不想跟大家在价格方面浪费时间
对于老客户或者被老客户介绍过来的朋友，我们都会适当给一些优惠。
选择实体注册公司办理，更放心，更安全！我们的承诺：客户在留信官方认证查询网站查询到认证通过结果后付款，不成功不收费！
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一比一原版（Carleton毕业证）加拿大卡尔顿大学毕业证如何办理
原件一模一样【微信：WP101A】【（Carleton毕业证）加拿大卡尔顿大学毕业证学位证成绩单】【微信：WP101A】（留信学历认证永久存档查询）采用学校原版纸张、特殊工艺完全按照原版一比一制作（包括：隐形水印，阴影底纹，钢印LOGO烫金烫银，LOGO烫金烫银复合重叠，文字图案浮雕，激光镭射，紫外荧光，温感，复印防伪）行业标杆！精益求精，诚心合作，真诚制作！多年品质 ,按需精细制作，24小时接单,全套进口原装设备，十五年致力于帮助留学生解决难题，业务范围有加拿大、英国、澳洲、韩国、美国、新加坡，新西兰等学历材料，包您满意。
【业务选择办理准则】
一、工作未确定，回国需先给父母、亲戚朋友看下文凭的情况，办理一份就读学校的毕业证【微信：WP101A】文凭即可
二、回国进私企、外企、自己做生意的情况，这些单位是不查询毕业证真伪的，而且国内没有渠道去查询国外文凭的真假，也不需要提供真实教育部认证。鉴于此，办理一份毕业证【微信：WP101A】即可
三、进国企，银行，事业单位，考公务员等等，这些单位是必需要提供真实教育部认证的，办理教育部认证所需资料众多且烦琐，所有材料您都必须提供原件，我们凭借丰富的经验，快捷的绿色通道帮您快速整合材料，让您少走弯路。
留信网认证的作用:
1:该专业认证可证明留学生真实身份【微信：WP101A】
2:同时对留学生所学专业登记给予评定
3:国家专业人才认证中心颁发入库证书
4:这个认证书并且可以归档倒地方
5:凡事获得留信网入网的信息将会逐步更新到个人身份内，将在公安局网内查询个人身份证信息后，同步读取人才网入库信息
6:个人职称评审加20分
7:个人信誉贷款加10分
8:在国家人才网主办的国家网络招聘大会中纳入资料，供国家高端企业选择人才
→ 【关于价格问题（保证一手价格）
我们所定的价格是非常合理的，而且我们现在做得单子大多数都是代理和回头客户介绍的所以一般现在有新的单子 我给客户的都是第一手的代理价格，因为我想坦诚对待大家 不想跟大家在价格方面浪费时间
对于老客户或者被老客户介绍过来的朋友，我们都会适当给一些优惠。
选择实体注册公司办理，更放心，更安全！我们的承诺：可来公司面谈，可签订合同，会陪同客户一起到教育部认证窗口递交认证材料，客户在教育部官方认证查询网站查询到认证通过结果后付款，不成功不收费！
办理（Carleton毕业证）加拿大卡尔顿大学毕业证学位证【微信：WP101A 】外观非常精致，由特殊纸质材料制成，上面印有校徽、校名、毕业生姓名、专业等信息。
办理（Carleton毕业证）加拿大卡尔顿大学毕业证学位证【微信：WP101A 】格式相对统一，各专业都有相应的模板。通常包括以下部分：
校徽：象征着学校的荣誉和传承。
校名:学校英文全称
授予学位：本部分将注明获得的具体学位名称。
毕业生姓名：这是最重要的信息之一，标志着该证书是由特定人员获得的。
颁发日期：这是毕业正式生效的时间，也代表着毕业生学业的结束。
其他信息：根据不同的专业和学位，可能会有一些特定的信息或章节。
办理（Carleton毕业证）加拿大卡尔顿大学毕业证学位证【微信：WP101A 】价值很高，需要妥善保管。一般来说，应放置在安全、干燥、防潮的地方，避免长时间暴露在阳光下。如需使用，最好使用复印件而不是原件，以免丢失。
综上所述，办理（Carleton毕业证）加拿大卡尔顿大学毕业证学位证【微信：WP101A 】是证明身份和学历的高价值文件。外观简单庄重，格式统一，包括重要的个人信息和发布日期。对持有人来说，妥善保管是非常重要的。
一比一原版(UAL毕业证)伦敦艺术大学毕业证如何办理
UAL硕士学位证成绩单【微信95270640】办理伦敦艺术大学毕业证原版一模一样、UAL毕业证制作【Q微信95270640】《伦敦艺术大学毕业证购买流程》《UAL成绩单制作》伦敦艺术大学毕业证书UAL毕业证文凭伦敦艺术大学
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如果你回国在学历认证方面有以下难题请联系我们我们将竭诚为你解决认证瓶颈
1所有材料真实但资料不全无法提供完全齐整的原件。【如：成绩单丶毕业证丶回国证明等材料中有遗失的。】
2获得真实的国外最终学历学位但国外本科学历就读经历存在问题或缺陷。【如：国外本科是教育部不承认的或者是联合办学项目教育部没有备案的或者外本科没有正常毕业的。】
3学分转移联合办学等情况复杂不知道怎么整理材料的。时间紧迫自己不清楚递交流程的。
如果你是以上情况之一请联系我们我们将在第一时间内给你免费咨询相关信息。我们将帮助你整理认证所需的各种材料.帮你解决国外学历认证难题。
国外伦敦艺术大学伦敦艺术大学本科毕业证成绩单办理方法：
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Capital structure and theories
- 1. Submitted by – shivam chaturvediSubmitted to – Nirbhay mahor sir
- 2. Meaning Capital structure Capital structure refer to the proportion between the various long term source of finance in the total capital of firm. A financial manager choose that source of finance which include minimum risk as well as minimum cost of capital.
- 3. Sources of long term finance Proprietor’s funds Borrowed funds Equity capital Preference capital Reserve and surplus Long term debts
- 4. Theories of Capital structure Net Income (NI) Theory. Net Operating Income (NOI) Theory. Traditional Theory. Modigliani-Miller (M-M) Theory.
- 5. Basic assumptions of all these theories Firms employees only debt and equity capital. Total assets of the firm are given. The film had 100% payout ratio. The operating earnings of the firm are not expected to grow it means EBIT remain same of all years. Business risk remain constant.
- 6. Capital structure Capital structure relevance theory Capital structure Irrelevance theory Net income approach Traditional approach Traditional Theory Modigliani- Miller (M-M) Theory
- 7. Net Income (NI) Theory It is discovered by DAVID DURAND. Relevance theory of capital structure. This theory says that there is relevance impact on the value of the firm and the overall cost of capital if we mix a debt in our capital structure " Greater the debt capital employed lower shall be the overall cost of the capital and more shall the be the value of the firm“.
- 8. Assumptions Cost of equity is always greater than cost of debt. There is no corporate tax. The risk perception of investors is not affected by the use of debt.
- 9. The proportion of debt (Kd) in capital structure increases, the WACC (Ko) reduces.
- 10. Net Operating Income Approach (NOI) It was discovered by David Durand . This capital structure theory is opposite of what he said in IN approach. This approach represent another view that Capital structure and the value of the firm are IRRELEVANT “. Capital structure of the firm does not influence by the debt proportion in it and lead to decrease the cost of capital and the value of the firm. Value effect because of market trends.
- 11. • According to David, " the use of the less costly debt increases the risk to equity shareholders, this cause, to increase as a result the low cost advantage of debt is exactly offset by increase in the capitalization rate. • Thus the overall capitalization rate () remain same and value of the firm does not change.
- 12. • Cost of capital (Ko) is constant. • As the proportion of debt increases, (Ke) increases. • No effect on total cost of capital (WACC) ke ko kd Debt Cost
- 13. Assumptions of NOI The market capitalizes the value of the firm as whole. The split between debt and equity is not important. Business risk remain same. No corporate taxes. Debt capitalization rate (kd) is constant.
- 14. Traditional Theory This theory is also known as intermediate approach. Theory was propounded by EZRA SOLOMON. It is combination of two theories Ni and NOI approach. Talks about both relevance and irrelevance impact on capital structure. Cost of capital can be reduced or the value of the can be increased with the justifiable mix of debt or equity. ko can be decreased with increase in debt capital upto a reasonable level and if debt is tried to Increase beyond the level then it results in rise of ko.
- 15. • Cost of capital (Ko) is reduces initially. • At a point, it settles. • But after this point, (Ko) increases, due to increase in the cost of equity. (Ke)
- 16. Modigliani-Miller (M-M) Theory This theory is invented by Modigliani and Miller. This theory is invented by Modigliani and Miller. MM argued that in the absence of tax, cost of capital and the value of the are not effected by the change in capital structure. other words, capital structure decision is irrelevant and the value of the firm is independent of debt- equity mix.
- 17. Imbalance will create ke rise and consequently lead ko rise.
- 18. Thank you