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Essay / Research Paper Abstract
This 7 page paper considers the capital structure of the well-known firm Intel, and assesses it against models which consider optimal capital stock chart, including that of Modigliani and Miller, applying the ideas to assess whether or not Intel have the will capital structure. The bibliography cites 6 sources.
Page Count:
7 pages (~225 words per page)
File: TS14_TEintelcostc.rtf
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Unformatted sample text from the term paper:
firms suffering as a result of the global recession and the credit crunch. In situations such as this, firms are likely to be interested in optimising performance in all ways
possible this may include the use of capital and the way that the firm balances the use of debt and equity. Intel have a high level of equity, a characteristics
that has certainly aided the firm during difficult time, the total capital used by the firm (in the 2009 balance sheet) amounts to $53,0951, of this $11,391 is debt and
the remaining $41,704 is equity, meaning only 21.4% of the capital is debt. However, ids this an optimal level? Debt has to be repaid and can have interest
payments due, whereas equity does not need to be repaid, but there is still a cost in terms of dividends, which may be complicated by the need to use tools
such as dividend signalling, especially in difficult trading condition. To assess whether Intel have an optimal level of debt and equity there are a number of approaches, Modigliani and
Millers Equity Arbitrage theorem is worthy of consideration and y assessing the theory we can apply it to Intel. This is a
theory that forms the basis of capital structure theories, and comes on two versions, with and without taxes. The original theory is without taxes so we will look at this
version. The basic theory is that where there are not costs of taxes, bankruptcy and in an environment where there is no asymmetric information and the market is efficient the
value of a company will not reflect the capital structure or the companys dividend policy. In theory where there are two companies (U) an unleveraged company and (L) a leveraged
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