CAPITAL STRUCTURE COST OF CAPITAL AND VALUATION
REFERENCES 1. Durand, D. The cost of debt and equity funds for business, Solomon, E (Ed.), Management of Corporate Capital. The Free Press, New York, 1959, pp. 91·116. [vfb id=1]
CAPITAL STRUCTURE COST OF CAPITAL AND VALUATION
SUMMARY > Capital structure refers to the mix or proportion of different sources of finance (debt and equity) to total capitalization. A firm should select such a financing-mix which maximizes its value the shareholders wealth (or minimizes its overall cost of...
CAPITAL STRUCTURE COST OF CAPITAL AND VALUATION
TABLE Leverage, Capitalisation/Rates and Valuation Table as well as Fig reveal that with an increase in leverage (N) from zero to 0.27, the market value of the firm increases (from Rs 1,000 to Rs 1.111) and the overall cost of capital declines from 10 to 9 per cent...
CAPITAL STRUCTURE COST OF CAPITAL AND VALUATION
Decreased Valuation and Increased Overall Cost of Capital Beyond a certain critical point, further increases in debt proportions are not considered desirable. They increase financial risks so much that both ki and ke start rising rapidly causing (k) to rise and (V) to...
CAPITAL STRUCTURE COST OF CAPITAL AND VALUATION
Constant Valuation and Constant Overall Cost of Capital After a certain degree of leverage is reached further moderate increases in leverage have no effect on total market value. During the middle range, the changes brought in equity-capitalization rate and...
CAPITAL STRUCTURE COST OF CAPITAL AND VALUATION
Increased Valuation and Decreased Overall Cost of Capital During the first phase, increasing leverage increases the total valuation of the firm and low overall cost of capital. As the proportion of debt in the capital structure increases the equity (k) begins to rise...
