This document discusses several theories of capital structure:
1. The net income approach developed by Durand states that a firm's value and cost of capital depend on its capital structure.
2. The net operating income approach and Modigliani-Miller approach state that a firm's total value and cost of capital are independent of its capital structure.
3. The traditional approach proposes that a firm's cost of capital first decreases then remains stable and eventually increases with higher leverage, implying an optimal capital structure.
Contains a descriptive of the following capital structure theories:
1. Net Income Approach
2. Net Operating Income Approach
3. Miller Modigliani Hypothesis
4. Traditional Approach
capital structure
,
goals and significance of capital structure
,
target capital structure
,
does capital structure matter
,
modigliani and miller theory
Approaches to determine appropriate capital structure - EBIT-EPS Approch
anybody can join my google class (financial Mangement)
by entering class code : avkkvj5
Contains a descriptive of the following capital structure theories:
1. Net Income Approach
2. Net Operating Income Approach
3. Miller Modigliani Hypothesis
4. Traditional Approach
capital structure
,
goals and significance of capital structure
,
target capital structure
,
does capital structure matter
,
modigliani and miller theory
Approaches to determine appropriate capital structure - EBIT-EPS Approch
anybody can join my google class (financial Mangement)
by entering class code : avkkvj5
What is the role of credit rating agencies in our global financial system? Learn how credit ratings on securities are created and used. Part of a continuing series of introductory seminars for the financial services industry. We develop custom training, contact us for a quote or discussion of your needs.
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
MARGINAL COSTING AS A TOOL FOR DECISION MAKINGShubham Boni
DON'T FORGET TO LIKE AND SHARE THE PRESENTATION.
MARGINAL COST:-
“Marginal cost is the additional cost of producing an additional unit of product.”
MARGINAL COSTING:-
“In Marginal costing technique, only variable costs are charged as product costs and included in inventory valuation.”
MARGINAL COSTING HELPS IN DECISION MAKING:-
1.Fixation of Selling Price.
2.Exploring New markets.
3.Make or buy decisions.
4.Product mix
5.Operate plant or shut down.
CASE STUDY 1:-
MAKE OR BUY DECISION.
CASE STUDY 2:-
PRODUCT MIX.
What is the role of credit rating agencies in our global financial system? Learn how credit ratings on securities are created and used. Part of a continuing series of introductory seminars for the financial services industry. We develop custom training, contact us for a quote or discussion of your needs.
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
MARGINAL COSTING AS A TOOL FOR DECISION MAKINGShubham Boni
DON'T FORGET TO LIKE AND SHARE THE PRESENTATION.
MARGINAL COST:-
“Marginal cost is the additional cost of producing an additional unit of product.”
MARGINAL COSTING:-
“In Marginal costing technique, only variable costs are charged as product costs and included in inventory valuation.”
MARGINAL COSTING HELPS IN DECISION MAKING:-
1.Fixation of Selling Price.
2.Exploring New markets.
3.Make or buy decisions.
4.Product mix
5.Operate plant or shut down.
CASE STUDY 1:-
MAKE OR BUY DECISION.
CASE STUDY 2:-
PRODUCT MIX.
Capital structure theories - NI Approach, NOI approach & MM ApproachSundar B N
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,
USDA Loans in California: A Comprehensive Overview.pptxmarketing367770
USDA Loans in California: A Comprehensive Overview
If you're dreaming of owning a home in California's rural or suburban areas, a USDA loan might be the perfect solution. The U.S. Department of Agriculture (USDA) offers these loans to help low-to-moderate-income individuals and families achieve homeownership.
Key Features of USDA Loans:
Zero Down Payment: USDA loans require no down payment, making homeownership more accessible.
Competitive Interest Rates: These loans often come with lower interest rates compared to conventional loans.
Flexible Credit Requirements: USDA loans have more lenient credit score requirements, helping those with less-than-perfect credit.
Guaranteed Loan Program: The USDA guarantees a portion of the loan, reducing risk for lenders and expanding borrowing options.
Eligibility Criteria:
Location: The property must be located in a USDA-designated rural or suburban area. Many areas in California qualify.
Income Limits: Applicants must meet income guidelines, which vary by region and household size.
Primary Residence: The home must be used as the borrower's primary residence.
Application Process:
Find a USDA-Approved Lender: Not all lenders offer USDA loans, so it's essential to choose one approved by the USDA.
Pre-Qualification: Determine your eligibility and the amount you can borrow.
Property Search: Look for properties in eligible rural or suburban areas.
Loan Application: Submit your application, including financial and personal information.
Processing and Approval: The lender and USDA will review your application. If approved, you can proceed to closing.
USDA loans are an excellent option for those looking to buy a home in California's rural and suburban areas. With no down payment and flexible requirements, these loans make homeownership more attainable for many families. Explore your eligibility today and take the first step toward owning your dream home.
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
What website can I sell pi coins securely.DOT TECH
Currently there are no website or exchange that allow buying or selling of pi coins..
But you can still easily sell pi coins, by reselling it to exchanges/crypto whales interested in holding thousands of pi coins before the mainnet launch.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and resell to these crypto whales and holders of pi..
This is because pi network is not doing any pre-sale. The only way exchanges can get pi is by buying from miners and pi merchants stands in between the miners and the exchanges.
How can I sell my pi coins?
Selling pi coins is really easy, but first you need to migrate to mainnet wallet before you can do that. I will leave the telegram contact of my personal pi merchant to trade with.
Tele-gram.
@Pi_vendor_247
what is the future of Pi Network currency.DOT TECH
The future of the Pi cryptocurrency is uncertain, and its success will depend on several factors. Pi is a relatively new cryptocurrency that aims to be user-friendly and accessible to a wide audience. Here are a few key considerations for its future:
Message: @Pi_vendor_247 on telegram if u want to sell PI COINS.
1. Mainnet Launch: As of my last knowledge update in January 2022, Pi was still in the testnet phase. Its success will depend on a successful transition to a mainnet, where actual transactions can take place.
2. User Adoption: Pi's success will be closely tied to user adoption. The more users who join the network and actively participate, the stronger the ecosystem can become.
3. Utility and Use Cases: For a cryptocurrency to thrive, it must offer utility and practical use cases. The Pi team has talked about various applications, including peer-to-peer transactions, smart contracts, and more. The development and implementation of these features will be essential.
4. Regulatory Environment: The regulatory environment for cryptocurrencies is evolving globally. How Pi navigates and complies with regulations in various jurisdictions will significantly impact its future.
5. Technology Development: The Pi network must continue to develop and improve its technology, security, and scalability to compete with established cryptocurrencies.
6. Community Engagement: The Pi community plays a critical role in its future. Engaged users can help build trust and grow the network.
7. Monetization and Sustainability: The Pi team's monetization strategy, such as fees, partnerships, or other revenue sources, will affect its long-term sustainability.
It's essential to approach Pi or any new cryptocurrency with caution and conduct due diligence. Cryptocurrency investments involve risks, and potential rewards can be uncertain. The success and future of Pi will depend on the collective efforts of its team, community, and the broader cryptocurrency market dynamics. It's advisable to stay updated on Pi's development and follow any updates from the official Pi Network website or announcements from the team.
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
Tele gram: @Pi_vendor_247
#pi #sell #nigeria #pinetwork #picoins #sellpi #Nigerian #tradepi #pinetworkcoins #sellmypi
how to sell pi coins in all Africa Countries.DOT TECH
Yes. You can sell your pi network for other cryptocurrencies like Bitcoin, usdt , Ethereum and other currencies And this is done easily with the help from a pi merchant.
What is a pi merchant ?
Since pi is not launched yet in any exchange. The only way you can sell right now is through merchants.
A verified Pi merchant is someone who buys pi network coins from miners and resell them to investors looking forward to hold massive quantities of pi coins before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
The Evolution of Non-Banking Financial Companies (NBFCs) in India: Challenges...beulahfernandes8
Role in Financial System
NBFCs are critical in bridging the financial inclusion gap.
They provide specialized financial services that cater to segments often neglected by traditional banks.
Economic Impact
NBFCs contribute significantly to India's GDP.
They support sectors like micro, small, and medium enterprises (MSMEs), housing finance, and personal loans.
Abhay Bhutada Leads Poonawalla Fincorp To Record Low NPA And Unprecedented Gr...Vighnesh Shashtri
Under the leadership of Abhay Bhutada, Poonawalla Fincorp has achieved record-low Non-Performing Assets (NPA) and witnessed unprecedented growth. Bhutada's strategic vision and effective management have significantly enhanced the company's financial health, showcasing a robust performance in the financial sector. This achievement underscores the company's resilience and ability to thrive in a competitive market, setting a new benchmark for operational excellence in the industry.
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
If you are looking for a pi coin investor. Then look no further because I have the right one he is a pi vendor (he buy and resell to whales in China). I met him on a crypto conference and ever since I and my friends have sold more than 10k pi coins to him And he bought all and still want more. I will drop his telegram handle below just send him a message.
@Pi_vendor_247
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
BYD SWOT Analysis and In-Depth Insights 2024.pptxmikemetalprod
Indepth analysis of the BYD 2024
BYD (Build Your Dreams) is a Chinese automaker and battery manufacturer that has snowballed over the past two decades to become a significant player in electric vehicles and global clean energy technology.
This SWOT analysis examines BYD's strengths, weaknesses, opportunities, and threats as it competes in the fast-changing automotive and energy storage industries.
Founded in 1995 and headquartered in Shenzhen, BYD started as a battery company before expanding into automobiles in the early 2000s.
Initially manufacturing gasoline-powered vehicles, BYD focused on plug-in hybrid and fully electric vehicles, leveraging its expertise in battery technology.
Today, BYD is the world’s largest electric vehicle manufacturer, delivering over 1.2 million electric cars globally. The company also produces electric buses, trucks, forklifts, and rail transit.
On the energy side, BYD is a major supplier of rechargeable batteries for cell phones, laptops, electric vehicles, and energy storage systems.
3. Theory of relevance
1.Net income approach
Theory of irrelevance
1. Net operating income approach
2.Modigliani Miller Approach
Neutral
Traditional Aproach
4. NET INCOME APPROACH
• THIS THEORY IS DEVELOPED BY DURAND.
• According to this theory, there exists relationship between
capital structure and value of the firm
• Ie., a change in debt equityratio in capital structure will lead to a
corresponding change in Ko and V
5. ASSUMPTIONS OF NI
APPROACH
• There are no taxes
• Cost of debt is less than cost of equity
• Use of debt in capital structure does not change risk perception
of investors
• Cost of debt and equity remains constant
• Optimum capital structure exists when value of firm is maimum
and Ko is minimum
6.
7. EXAMPLE
Particulars With existing capital
structure
When debt is
increased by
1,00,000
When debt capital is
decreased by
1,00,000
10% debentures 2,00,000 3,00,000 1,00,000
EBIT 50,000 50,000 50,000
Ke 12.5 12.5 12.5
Interest 20,000 30,000 10,000
NO OF SHARES 2,40,000/100
=2,400 SHARES
2400-(1,00,000/100)
=1400 SHARES
2400+1000
=3400 SHARES
8. Particulars With existing capital
structure
When debt is
increased by 1,00,000
When debt capital is
decreased by 1,00,000
EBIT 50,000 50,000 50,000
-INTEREST 20,000 30,000 10,000
EARNINGS AVAILABLE 30,000 20,000 40,000
VALUE OF EQUITY NI/Ke NI/Ke NI/Ke
30,000*100/12.5
=2,40,000
20,000*100/12.5
=1,60 000
40,000*100/12.5
3,20,000
VALUE OF DEBT 2,00,000 3,00,000 1,00,000
VALUE OF FIRM 4,40,000 4,60,000 4,20,000
COST OF CAPITAL EBIT/V
50,000/4,40,000
=11.36%
EBIT/V
50,000/4,60,000
=10.86%
EBIT/V
50,000/4,20,000
=11.9%
MARKET VALUE OF
SHARE
2,40,000/2400
=100
1,60,000/1400
=114.28
3,20,000/3,400
=94.11
9. NET OPERATING INCOME
APPROACH
• This theory was developed by Durand.
• It states that there is no relationship between capital structure,
cost of capital and value of the firm
10. ASSUMPTIONS
• Overall cost of capital remains unchanged
• Total value of firm minus MV of Debt=
MV of equity
Use of debt increases risk of equity thereby increases Ke
Cost of debt remains constant
There are no corporate taxes
There is no optimum capital structure
11.
12. • The total value of firm= EBIT/Ko
• Value of equity= value of firm
minus
value of debt
13. EXAMPLE
Particulars With existing capital
structure
When debt is
increased by
2,00,000
When debt capital is
decreased by
2,00,000
8% debentures 4,00,000 6,00,000 2,00,000
EBIT 1,00,000 1,00,000 1,00,000
Ke 12.5 12.5 12.5
Interest 32,000 48,000 16,000
NO OF SHARES 5,44,000/10
=54,400 SHARES
54,400-(2,00,000/10)
=34,400 SHARES
54,400+20,000
=74,400 SHARES
14. Particulars With existing capital
structure
When debt is increased
by 1,00,000
When debt capital is
decreased by 1,00,000
Value of the firm=
EBIT/Ko
1,00,000/0.125
=8,00,000
1,00,000/0.125
=8,00,000
1,00,000/0.125
=8,00,000
Minus DEBT (4,00,000) (6,00,000) (2,00,000)
VALUE OF EQUITY =4,00,000 =2,00,000 =6,00,000
Cost of equity
EBIT-I*100/E
100,000-32,000
4,00,000
=17%
1,00,000-48,000
2,00,000
=26%
1,00,000-16,000
6,00,000
=14%
NO. OF EQUITYSHARES 4,00,000
10
=40,000 SHARES
40,000-20,000
(2,00,000)
10
= 20,000 shares
40,000+20,000
=60,000 shares
MV per share 4,00,000
40,000
=10 /-
2,00,000
20,000
=10/-
6,00,000
60,000
=10/-
15. TRADITIONAL APPROACH
• this theory was given by Soloman.
• This approach is intermediary between NI approach and NOI
approach
• It is similar to Ni approach in a way that the cost of capital and
value of firm depends on capital structure. But it does not accept
that value of firm will necessarily increase for all degrees of
leverage
• It supports NOI aopproach that , beyond a certain degree of
leverage the over all cost of capital increases, leading to
decrease in the total value of the firm. But differs that overall
cost of capital will remain unchanged for all degrees of
leverage.
16. ASSUMPTIONS
• Rate of interest on debt remains constant for certain period and
then after with an increase in leverage, it increases
• Equity shareholders as well as the debt holders perceive
financial risk and expect premium for the risk undertaken
• Investors risk perception is different at different level of leverage
• There is no corporate tax.
17.
18. MAIN PROPOSITIONS
• Cost of debt (Kd)remains constant upto a certai degree of leverage and
rises thereafter at an increasing rate
• Cost of equity (Ke) remains constant rises slightly upto a certain degree of
leverage andrises sharper thereafter, due to increased perceived risk
• The overall cost of capital (Ko) as a result ofKd and Ke behaves in the
following manner:
• A) stage 1: increasing firm value: decreases upto certain point of degree of
leverage
• B)stage 2: optimum value of firm: remains more or less unchanged for
moderate increase in leverage thereafter
• C) stage 3: decline in firm value: rises sharply beyond certain degree of
leverage
19. • So , it can be concluded that there is a range of capital structure
in which cost of capital(Ko) is minimum and Value of firm is
maximum
20. MODIGLIANI MILLER
APPROACH
(MM HYPOTHESIS)
• This approach is developed by Franco Modigliani and Mertan
Miller (MM).
• This approach is identical to NOI.
• This approach states that total value of the firm is independent
of its capital structure
21. • However, there is basic difference between NOI and MM
• NOI does not provide operational justification
for irrelevance of capital structure whereas
MM states that in the absence of taxes, firm’s
total market value and the overall cost of
capital remains constant to the change of
debt capital proportion in capital structure
•
22. ASSUMPTIONS
• 1. information is available free of cost
• 2. this information is available to all investors
• 3. securities are infinitely divisible
• 4. no transaction cost
• 5. investors are free to buy and sell securities
• 6. dividend payout ratio is 100%
• 7. EBIT is not affected by use of debt
23. BASIC PROPOSITIONS
• Ko and V are independent of capital structure
• Total value of the firm must be constant for all degree of
leverage
• This theory is entirely based on “Arbitrage process”
24. ARBITRAGE PROCESS
• It refers to an act of buying an asset or security in one market at
lower price and selling it in other market at higher price.
• Investors will switch their securities between identical firms
(from levered firm to unlevered firm) and receive the same
returns from both firms
25. EXAMPLE
VALUE OF THE FIRM LEVERED FIRM UNLEVERED FIRM
EQUITY 60,000 1,00,000
DEBT 50,000
TOTAL 1,10,000 1,00,000
Kd 6% -
EBIT 10,000 10,000
Investor holds sharecapital 10% 10%
26. • Return from levered firm
• Investment= 10% of 1,10,000-50,000
= 60,000*10/100=6,000
Return=10%(10000-(6/100*50000) =1000-300=700
27. ALTERNATE STRATEGY
• 1 Sell shares in L=10% of 60,000 = 6000
• 2. borrow (personal leverage)
10% of 50,000=5000
3. Buy shares in U= 10% of 1,00,000=10,000
Return from alternate strategy:
Investment=10,000
Return=10%=1,000
Deduct interest on borrowings= 6% of 5,000=300
Net return=1,000-300 =700
Cash available=11000-10000=1000
Investor shall sell his shares in levered firm and invest in the unlevered firm
28. CRITICISM
• Risk characteristics of individuals and firms are different
• There are different lending and borrowing rates for individuals
and firms
• There are restrictions imposed on institutional investors
• Capital markets are not perfect
• Transaction costs cannot be ignored
• Corporate taxes are an important consideration