The Major Issues in the Debate Regarding the Existence of an Optimal Capital Structure - Term Paper Example

The requirements and the expectations of the consumers revolutionized, and for this purpose the banking sector was compelled to adopt and introduce set of revised and modified scheme which primarily focused on lending services, the deposition activities although gained a massive momentum, but the contribution in this regard was mainly from the wealthy people, the lending services were sought by the industries, corporate world and the major portion of society....

The author of the paper describes the ways the nature of the bankruptcy code affects the capital structure decisions of the companies.... The author of the paper also examines the implications of the answer to the trade-off theory of the capital structure.... nbsp;… capital structure is the structure of capital.... So the companies should deeply analyze financial implications before taking capital structure decisions.... Even though the cost of capital plays an important role while taking a decision regarding the capital structure, the bankruptcy code also plays a prominent role in the decisions....

The paper "The Theory of optimal capital structure" highlights that generally, loans will not be disbursed to a firm with poor credit ratings and the firm would need to do equity financing to raise capital; this would lead to a low debt-equity ratio.... he optimal capital structure is that mix of debt and equity that maximizes the firm's value or minimizes the cost of capital.... capital structure is important because: It gives the Weighted Average Cost of Capital (WACC)....

hellip; Capital strucutre is one of the highly debated issues involving many complex problems related with what should be the optimum capital structure for the company to maximize its value.... Debt to book capitalization ratioCapital strucutre is one of the highly debated issues involving many complex problems related with what should be the optimum capital structure for the company to maximize its value.... The paper "capital Strucutre " describes that the theory suggest that the firm value is independent of the capital strucutre and there is no fixed combination of the debt and equity which can suggest that it this level the firm has the optimum capital strucutre....

The paper "Opportunity Costs, Cost of Capital, The Firm's Optimum capital structure" states that the cost of capital is determined by the firms' target capital structure which is the weight ages in which it wants to raise equity and debt.... nbsp;4) The firm's optimum capital structure is the weight ages of both equity and debt for which the cost of capital is the lowest.... The Finance Managers needs to manage a firms cost of capital....

According to the review, the major factors that have drove the world in the current financial crisis include among others the increasing financial innovation, growth in the market size, as well as microeconomic imbalances thus, causing overall systemic risk increase.... In designing capital adequacy set of laws, the review postulate a couple of variant approaches which include: forming rules that are geared towards influencing the activities undertaken by different banks through sinking excessive risk taking incentives for the good of the economy at large (FSA 2009)....

In this similar context, I identified that the capital requirement of a firm is dependent on two sources that mainly include… Respectively, I conjure that varied capital sources are typically based on different costs and thus, needed appropriate analysis for designing an optimal capital structure for raising required finance appropriately (Grundy, n.... Respectively, I conjure that varied capital sources are typically based on different costs and thus, needed appropriate analysis for designing an optimal capital structure for raising required finance appropriately (Grundy, n....

Though the use of more debt capital in the capital structure has a lot of advantages, it has got some disadvantages too.... So the companies should deeply analyze financial implications before making capital structure decisions.... Even though the cost of capital plays an important role while taking the decision regarding the capital structure, the bankruptcy code also plays a prominent role in the decisions.... Therefore, care must be taken while deciding the capital structure....