homework help

Theory of Capital Structure

Personalized homework help for all major subjects.

Order confidently with our risk free, 14-day money-back guarantee.

  • ✔️ No sign-up required
  • | 🔒 100% Confidential

Our Expert Writers

We proudly boast a team of expert professionals with verified academic credentials, selected for their proven skills and flexibility through a strict process.

Engage with experts from the top universities across the globe.

Get Homework Help Instantly

Say goodbye to homework stress! 📚 Just share your details and we’ll whip up an affordable quote in no time – often within 15 minutes.

Get started now for FREE!

Submit Your Homework

Let our experts help you with your college homework

A number of theories are there for the theory of Capital Structure. Every author has shown their expertise in the field to develop some important theories that include:

  1. Traditional Approach
  2. Modigliani and Miller Approach
  3. Net Operating Income Approach
  4. Net Income Approach
  1. Traditional Approach:

According to traditional approach for Capital Structure, the capital value of an organization can be increased in the beginning. With the proper allocation of investments, thecost of capital gets decreased. This can only happen when more debt are taken as it is much cheaper source than other sources of funds like equity. It is also called as Ezra Solomon’s Approach.

  1. Modigliani and Miller Approach:

According to this approach, the capital value of an organizationis independent of the Capital Structure. This is how Modigliani-Miller Approach checks the average cost of capital. Its value does not change with the change of capital structure of the organization. This statement is truly like simple switching mechanism and can be called as arbitrage.

In this MM Approach, comparing two firms, every feature of these organizations will be identical except that of Capital Structure. Both these firms cannot have different cost of capital as they have arbitrage process.

For instance, these two organizations have different cost of capital. This means they do not possess arbitrage process. In this case, the firms will perform personal leverage to balance the situation and maintain the same value for arbitrage process. The MM Approach is also called as similar to Net Operating Income Approach.

Modigliani-Miller Approach is based on assumptions:

  • No transaction records of the organization
  • Every investor is free to sell and buy securities
  • No retained earnings but dividend payout ratio is considered as 100%
  • There is no risk of borrowing capital
  • No corporate taxes (However, it has been removed from the assumptions later)
  1. Net Operating Income Approach:

According to the Durand, Net Operating Income Approach is consideredas, any change in the Capital Structure of an organization or Cost of Capital does not affect company’s market value. Irrespective of the financing methods, overall Capital Structure remains the same.

For instance, if the debt-equity mix has different figures like 30:70, 10:90 or 50:50, the cost of capital remains constant. This approach is based on a few assumptions where all the structures are considered as optimum capital structure:

Other assumptions as follows:

  • The risk in the business process remains constant at each level of debt-equity
  • The market value of the organization capitalizes.
  1. Net Income Approach:

Net Income Approach is entirely opposite to Net Operating Income Approach. According to this approach, any organization can improve or better their market stand with more debt. This helps in minimizing the average cost of capital.

NI Approach is based on assumptions that include:

  • Cost of debt is always less than cost of equity
  • Debt of the firm never change the risk parameters of investors
  • No corporate taxes

What is Balanced Capital Structure?

Balanced or Optimum Capital Structure can be termed as ideal combinations of owned and borrowed capital. This helps to achieve maximization of market share along with decreasing the cost of capital. In every capital investment, the source of funds will always remain the same.

Characteristics of Balanced Capital Structure:

  1. Economy
  2. Conservatism
  • Attraction to the Investors
  1. Profitability
  2. Ease and Simplicity
  3. Effective Control
  • Solvency
  • Minimum Remuneration

 

Links of Previous Main Topic:-

Links of Next Finance Topics:-

Your Price: $11.00 $10.00

Pricing may change based on requirements

Descriptive text for the image

Get Homework Help In

Maths and Statistics

Science

Humanities & Arts

l

Essay Writing

How Our Homework Service Works

FAQ number 1

Share your requirements

FAQ number 2

Make secure payment

FAQ number 3

Get homework answers

FAQ - Frequently Asked Questions

Discover quick answers in our FAQ, covering the most common customer questions about our homework help service.

Is your homework service confidential?

M
L

Absolutely! Confidentiality is one of the basic guarantees of our service at MyHomeworkHelp.com.

When our customers make their homework orders, they know their information remains 100% confidential.

Even your homework writer will not be provided with your personal details. So, when you hire a professional homework helper on our website, rest assured that your information will remain private and safe.

For a comprehensive understanding of how we protect your privacy, please refer to our Privacy Policy.

Who will help me with my homework?

M
L

We work with subject experts from all over the world. We hire them with the help of complex tests in the disciplines of their expertise. We also verify the IDs and academic transcripts of our homework writers to be sure that our experts have a bachelor's or master’s or a PhD degree. This is how we can be sure of the proficiency of our panel of experts who will help you with your homework.

Is it legal to ask for help with homework?

M
L

Seeking homework help is perfectly fine and shows your proactive approach to overcoming challenges. But it's important to use our homework service to enhance your understanding, not to replace your own efforts.

Our homework service offers original solutions for personal use, including:

  • Generating ideas or arguments for your research.
  • Deepening your subject comprehension.
  • Direct citation, with proper referencing.

However, it's crucial to avoid plagiarism by not submitting our work as your own. Make sure to check your institution's academic integrity policies before using our services. Our goal is to support your educational journey in a responsible and beneficial way. Refer our honor code for more details.

Is myhomeworkhelp.com legit?

M
L

Yes, myhomeworkhelp.com is completely legitimate. We've been successfully connecting students with top experts worldwide since 2012, offering direct, secure communication for a seamless learning experience. With over thousands of students helped and a commitment to innovative, effective education tools, we're dedicated to making learning easier and more accessible for everyone.

You can read our reviews here on Trustpilot and Sitejabber (Independent, verified reviews from buying customers) like you!

Is there a possibility of plagiarism in my completed order?

M
L

Unlike our competitors who use cheap and ineffective in -house plagiarism software, MyHomeworkHelp.com uses credible software to check your homework solution originality. We guarantee that your paper will pass TurnItIn checks with a low percentage of similarity. In addition, we also check submitted papers for ai-content using Originality.ai.

You will receive a complemantary plagiarism free report with your completed order.

What makes you one of the best homework help website?

M
L

We are not number 1 (yet!). We're an independent, bootstrapped business standing up to Big EdTech for last 12 years. So it means a lot that folks like you are willing to consider our services for your educational needs.

Myhomework Help is recognized as one of the premier websites for homework answers for three key reasons.

  1. Firstly, we pride ourselves on the expertise and qualifications of our tutors/experts, who are selected through a rigorous vetting process to ensure they can provide best academic assistance across a wide range of subjects.
  2. Secondly, our response time to student inquiries is fast (as early as few minutes), reflecting our understanding of the importance of timely support in an academic setting.
  3. Lastly, we keep our pricing very student friendly. Our aim is to provide the best learning experience to students like yourself without burning a hole in your pockets.