Capital structure
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Title: Capital structure

Essay Details:

Subject: Business
Author: Martha W
Date: November 28, 2013
Level: University
Grade:
Length: 4 / 1082

Essay text:

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. 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...

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