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Essay / Research Paper Abstract
This 12 page paper looks at the idea that there is an optimum capital structure. The paper starts by looking at the ideas of Modigliani and Miller and then considers the way that these have been viewed by subsequent theorists and how optimum capital structure may, or may not, be ascertained. The bibliography cites 8 sources.
Page Count:
12 pages (~225 words per page)
File: TS14_TEoptcapstr.rtf
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Unformatted sample text from the term paper:
of the firm. There is an association of increased risk with firms that have a high level of borrowing, but borrowing also facilities increased opportunities, but at the same time
firms may wish to contain their costs and assess the right level of borrowing. Both debt and equity have costs, both of which have different influences. The research which has
taken place does not agree on if and how and optimal capital may be assessed and realised. To assess why firms borrow,
and to assess if there is a potential optimal level it is necessary to look at the theories regarding capital structure. This may be considered not only in terms of
the firm and their own costs, but also in the context of the way in which they may attract investors and satisfy investor needs. The first consideration
will be to need to look at the development of capital structure theories, a core theory on which many other may be based or compared to is that of Modigliani
and Millers Equity Arbitrage theorem, this will form a basis again which other theories may be assessed. Following this we can look at the theories regarding the way that capital
structure may be determined, looking at ideas such as pecking order and trade-off theory. These can then be analysed to assess the way in which they may be applied and
to determine whether or not there really is an optimal capital structure for a firm. One of the most controversial approaches to capital structure theories has been Modigliani and
Millers Equity Arbitrage theorem. There is a strong argument made by Modigliani and Miller that there should not be any impact on the cost of capital regardless of the
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