Overview with Objectives:
Does it matter whether a company's assets are being financed with 50% from a bank loan and 50% from investors' money? Does that form of capital structure, where 50% of assets come from debt and 50% from equity, influence how a company succeeds in business? This unit addresses these questions by focusing on the theory of capital structure. Specifically, Unit 5 explains the concept of capital structure and introduces you to the most common formula used when comparing a company's return to the cost of capital: The weighted average cost of capital (WACC). Also, Unit 5 exposes the concept of how tax policy affects a company's true cost of capital.
learning outcome:
- From where do firms get money to operate?
- How do financial markets allocate resources to firms?
- What are the major sources of a firm's capital?
- What are the pros and cons of each valuation method?
- What does the term "capital structure" mean?
- What is the Modigliani- Miller theorem?
