Debt financing in capital structure, Financial Management

Assignment Help:

Net Income approach says that a raise in the proportion of debt financing in capital structure results in an increase in the proportion of a cheaper source of funds. This in turn results in diminishes in overall cost of capital leading to an increase in the value of the firm. The major reasons are:

  • The assumption of cost of debt to be fewer than the cost of equity.
  • The interest on debt is a deductible expenditure when the company gets the tax benefits on it.

 


Related Discussions:- Debt financing in capital structure

Cost of capital, The Nu-Nu Brothers Inc. (NNBI) has the following capital s...

The Nu-Nu Brothers Inc. (NNBI) has the following capital structure, which it considers to be optional: Debt 25% Preferred Stock 15% Common Equity 60% NNBI''''s expected net income

Budgeting and budgetary control, Budgeting and Budgetary Control: The n...

Budgeting and Budgetary Control: The next element of financial management is budgeting and budgetary control.  Budgeting is an integral part of the management accounting proces

Negotiating and closing transaction, Negotiating and Closing Transaction: ...

Negotiating and Closing Transaction: A diverse set of skills and very thorough preparation is required for negotiating and closing a divestiture transaction. Facts and informat

Capital investment decisions, what are the key stages in capital investment...

what are the key stages in capital investment decision-making process and the role of investment appraisal in this process?

Financial system, Financial System: The economic development of a natio...

Financial System: The economic development of a nation is reflected by the progress of the various economic units, broadly classified into corporate sector, government and hous

Illustrate about the financial management, Illustrate about the Financial M...

Illustrate about the Financial Management Individual businesses face problems dealing with acquisition of funds to carry on their activities and with determination ofoptimum

Capitalization ratios, Capitalization ratios are used for determining the e...

Capitalization ratios are used for determining the extent to which the corporation is trading on its equity, and the resulting financial leverage. These ratios

Managing finance, Read the journal article Lafferty, B. A., & Hult, G. T. M...

Read the journal article Lafferty, B. A., & Hult, G. T. M. (2001) ‘A synthesis of contemporary market orientation perspectives’, European Journal of Marketing, 35 (1/2), pp. 92–109

Discuss the pros and cons of financing in unhedged, You have the following ...

You have the following information about rates in London for Eurocurrency loans of one-year duration, the exchange rate between the USD and euros, the currency in which you want fi

Revenue bonds, A revenue bond is a special type of municipa...

A revenue bond is a special type of municipal bond distinguished by its guarantee of repayment from revenues generated by a specifie

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd