1) What is capital structure? Why does it matter? 2) Does a firm’s dividend policy matter? Why or Why not? What are various methods of distributing profits to shareholders?
What is capital structure? Why does it matter?
Chapters 14, 15, and 18
Firstly, what is capital structure? Why does it matter?
Secondly, does a firm’s dividend policy matter? Why or Why not? What are various methods of distributing profits to shareholders?
Thirdly, what is an IPO? What do you understand by IPO underpricing?
Fourthly, define and discuss various types of underwriting arrangements.
Further, what is a stock repurchase? Is it good or bad for the investors? When and how?
Finally, explain the Modigliani and Miller theory of capital structure.
Firstly, define and discuss the pros and cons of a restrictive short-term financial policy and a flexible short-term policy.
Secondly, list some sources and uses of cash in a corporate setting.
What is Capital Structure?
Capital structure refers to the amount of debt and/or equity employed by a firm to fund its operations and finance its assets. A firm’s capital structure is typically expressed as a debt-to-equity or debt-to-capital ratio.
Debt and equity capital are used to fund a business’s operations, capital expenditures, acquisitions, and other investments. There are tradeoffs firms have to make when they decide whether to use debt or equity to finance operations, and managers will balance the two to find the optimal structure.
The optimal capital structure of a firm is often defined as the proportion of debt and equity that results in the lowest weighted average cost of capital (WACC) for the firm. This technical definition is not always use in practice, and firms often have a strategic or philosophical view of what the ideal structure should be.
In order to optimize the structure, a firm can issue either more debt or equity.