Question and answer
is the use of debt in a firm's capital structure
In finance, capital structure refers to the way a corporation finances its assets through some combination of equity, debt, or hybrid securities. A firm's capital structure is then the composition or 'structure' of its liabilities. [ For example, a firm that sells $20 billion in equity and $80 billion in debt is said to be 20% equity-financed and 80% debt-financed. The firm's ratio of debt to
total financing, 80% in this example, is referred to as the firm's leverage.[citation needed] In reality, capital structure may be highly complex and include dozens of sources. Gearing Ratio is the proportion of the capital employed of the firm which come from outside of the business finance, e.g. by taking a short term loan etc. 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 disregards many important factors in the capital structure decision. The theorem states that, in a perfect market, how a firm is financed is irrelevant to its value. 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. Some other reasons include bankruptcy costs, agency costs, taxes, and information asymmetry. This analysis can then be extended to look at whether there is in fact an optimal capital structure: the one which maximizes the value of the firm. ]
Expert answered|marionsal|Points 20|
Question
Asked 2/26/2013 1:55:36 PM
0 Answers/Comments
Get an answer
New answers
Rating

There are no new answers.

Comments

There are no comments.

Add an answer or comment
Log in or sign up first.
Questions asked by the same visitor
_____ is the use of debt in a firm s capital structure.
Weegy: What Are Signaling Effects in Capital Structure?. ... Investors only receive the firm's financial ... [ Capital structure in business is the use of debt and equity ... or Capital structure is a mix of a company's long-term debt, ... [ [ What Are the Advantages and Disadvantages to the Use of Debt in a Business Capital Structure? ] (More)
Question
Expert Answered
Asked 2/26/2013 1:50:47 PM
0 Answers/Comments
25,343,695 questions answered
Popular Conversations
8!
Weegy: hello what is your question? User: 0!=0 Weegy: The answer is zero. The property is identity property of ...
5/26/2016 2:58:30 PM| 2 Answers
Weegy Stuff
S
Points 662 [Total 662] Ratings 10 Comments 542 Invitations 2 Offline
S
Points 649 [Total 649] Ratings 12 Comments 529 Invitations 0 Offline
S
Points 592 [Total 592] Ratings 0 Comments 592 Invitations 0 Offline
S
1
L
L
P
R
P
L
P
P
R
Points 287 [Total 12539] Ratings 2 Comments 267 Invitations 0 Offline
S
L
P
P
P
Points 166 [Total 3543] Ratings 0 Comments 166 Invitations 0 Offline
S
Points 38 [Total 107] Ratings 0 Comments 38 Invitations 0 Offline
S
Points 12 [Total 12] Ratings 1 Comments 2 Invitations 0 Offline
S
Points 10 [Total 10] Ratings 1 Comments 0 Invitations 0 Offline
S
Points 4 [Total 4] Ratings 0 Comments 4 Invitations 0 Offline
S
Points 3 [Total 3] Ratings 0 Comments 3 Invitations 0 Offline
* Excludes moderators and previous
winners (Include)
Home | Contact | Blog | About | Terms | Privacy | © Purple Inc.