CORPORATE FINANCE

CORPORATE FINANCE OPTIMAL CAPITAL STRUCTURE THEORIES

CORPORATE FINANCE OPTIMAL CAPITAL STRUCTURE THEORIES

Corporate Finance

When it comes to understanding the financial system and its functioning in a particular industry there will be several amends that we see today which are of keen interest that shall help understand and cooperate the accounts of making significant amends accordingly. Corporate finance helps us identifying and understanding the movement of organizational amends that we see fit today (Myers, 1984, 187-221).

For the procession of this paper, there are several tools and utensils that have been undertaken for coining and making viable and justified decisions regarding improvement and efficiency of the overall financial position of an economy and the overall country respectively. This discipline covers different decisions related to financial stability, which includes capital structure decisions, call and put options, yield curves, profitability, just to name a few (Baker, 2002, 1-32).

Capital Structure

Capital structure implies a combination of funds that meet the overall need of an organization and at the same time help to the organization to survive in the overall market. When considering about the most appropriate capital structure decisions that should be undertaken, there is no clear answer to it since every firm's need and demands in terms of financial assistance and financial support are different in their own ways. For instance, the financial structuring of an advertising campaign shall greatly differ from those of setting up the physical infrastructure of setting up a pharmaceutical or a steel plant at the edge of the city (Myers, 1984, 187-221).

When we consider about the amount of capital that should be undertaken when it comes to properly setting up, establishing and initiating the functioning and rolling of an organization, there are two major sources of funds that are normally included as per the context of design the capital structure of an organization (Myers, 1984, 187-221). These include debt and equity. Debt implies the funds that are being extended by a financial institution (such as a bank) that help us intended a security or collateral to a bank and then eventually pay the bank in the form of interest. On the other hand, it is also suggested that individuals who look forward to adopt equity know that this is a source from which individuals look into the sources of funds and monetary backing that is extended by the people or investors or stakeholder joined and considered with the organization (Baker, 2002, 1-32).

Optimal Capital Structure

The optimal capital structure can be defined as that maximizing business value. Maximize the value of the company is minimizing the weighted average cost of capital (WACC) when cash flows not affected by the increase in the debt / value of the company. Why do not maximize shareholder value? Show that maximize the value of the company is also to maximize the value of the shares when the nominal value debt is equal to its market value is simple if the theory Options is used: Recital with Black and Schools to the company's shares as a call ...