Nobody downloaded yet

Marine Finance(Capital Funding Structure) - Essay Example

Comments (0) Cite this document
Summary
A UK-listed high-growth company that wants to expand operations or take advantage of a promising investment opportunity is faced with the challenge of how to obtaining additional financing. The chief financial officer of the company also has to make a choice whether the…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER94.5% of users find it useful
Marine Finance(Capital Funding Structure)
Read TextPreview

Extract of sample "Marine Finance(Capital Funding Structure)"

Download file to see previous pages In 1958, Franco Modigliani and Merton Miller, two prominent financial economists, constructed a theory of capital structure (usually referred to as the MM) that is widely considered as the most influential financial theory up to this time. Basically, the MM theory assumes perfect capital market conditions where all relevant information is readily available, where there are no transaction costs, and where borrowing and lending rates are the same for all investors. The theory likewise assumes that there are no income taxes, that operating income is constant over time -- i.e., there is no growth -- and that all earnings are paid out as dividends.
In 1963, Modigliani and Miller modified their original work by including corporate taxes. With such taxes, leverage would increase the firms value because interest on debt is a tax-deductible expense and more income accrues to the investors. Consequently, the value of the firm increases. The cost of debt is the after-tax yield (1-tax). This lower cost of debt, combined with the existing cost of equity, will result in a lower weighted average cost of capital the greater the leverage. The benefits of debt financing derive from solely from the tax deductibility of interest payments. This observation would lead one to conclude logically that the company should use more leverage to the extent that all financing will be done through debt. In reality, however, companies do no such thing. While historically the debt/asset ratios have risen overall, companies maintain capital structures that are stable with a some combination of debt and equity at some in-between point. (See Brealey & Myers; Brigham & Gapenski; Keat & ).
Much later, Merton Miller extended the theory by including personal taxes. Personal taxes in the modified model would reduce -- but not eliminate -- the benefits of debt financing. Because the introduction of personal taxes lowers the income to investors, they reduce the value ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Marine Finance(Capital Funding Structure) Essay”, n.d.)
Retrieved from https://studentshare.org/miscellaneous/1561217-marine-financecapital-funding-structure
(Marine Finance(Capital Funding Structure) Essay)
https://studentshare.org/miscellaneous/1561217-marine-financecapital-funding-structure.
“Marine Finance(Capital Funding Structure) Essay”, n.d. https://studentshare.org/miscellaneous/1561217-marine-financecapital-funding-structure.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Marine Finance(Capital Funding Structure)

Capital structure analysis

...?Capital Structure Analysis Table of Contents Problem 28 3 Prob. a) 4 Prob. b) 5 Prob. c) 5 Prob. d) 5 References 7 Bibliography 7 Problem 28 Info Systems Technology (IST) is a manufacturer of microprocessor chips. The company has 100 million shares outstanding and no debt. Now, IST is supposed to raise capital worth $500 million in order to build a fresh production facility. In the occurrence of a financial distress, the company would experience a great loss of both consumers as well as engineering talents. If IST takes a debt of $500 million, the managers of the company are afraid that the present value of the cost of financial distress would be more than the tax benefits by an amount...
3 Pages(750 words)Math Problem

Marine Finance and Insurance

...financing by a financier. Marine Insurance Market, Market Practices and the Risks Insured The exact reason why an individual who wishes to transport his or her cargo by ship needs to know about marine insurance is that it will help you protect your cargo form the point of origin to the point of destination. Two ways exist in which a businessman can transport his or her cargo: wet marine also called waterborne cargo or as dry marine also called land transported cargo (Gaebler, 2009). For small businessmen who regularly transport cargo overseas, they are supposed to use inland marine insurance that protects cargo that is transported by via...
7 Pages(1750 words)Essay

Capital Structure

...Structure. Strategic Management Journal, Vol. 14, No. 1. pp7-8. John Wiley & Sons. Retrieved on 30 April 2009 available at http://www.jstor.org/stable/2486546. Brav, Omer (2009). Access to capital, Capital Structure and the Funding of the Firm. The Journal of Finance. Vol. 64. No. 1. pp265, 268. Borch, Karl. (1969). The Capital Structure of a Firm. The Swedish Journal of Economics, Vol. 71, No. 1. pp6-7. Blackwell Publishing on behalf of The Scandinavian Journal of Economics. Retrieved on 30 April 2009 available at http://www.jstor.org/stable/3439158. Chaganti, Rajeshwararao & Damanpour, Fariborz....
6 Pages(1500 words)Essay

Capital Funding

...that students are the best human capital. Undoubtedly, the government policies are playing important role in private sector development, by creating appropriate environment for private investment for a stimulating the competitative capabilities of original enterprises and making a change to efficient social and economic structures. In addition to this the respective policies of capital funding facilitating the establishment of new sustainable, productive enterprises and business and they also strengthen...
14 Pages(3500 words)Essay

Capital Funding in School Districts

...Capital Funding in School Districts Capital Funding in School Districts Most of the school buildings in America are more than 50 years old. There areschool buildings of more than 100 years old also. Some of the school buildings have failing roofs, broken boilers, asbestos contamination, structural problems, inadequate fire safety systems, inadequate water treatment systems, faulty electric, and pest infestation etc ; all causing problems to the safe and secure learning process of the school children. It is unwise and illogical to ask the students to study in extremely old buildings when the curriculum methods are changing rapidly. Replacing old buildings with new buildings, repairing old buildings, incorporating more facilities... to the...
4 Pages(1000 words)Research Paper

Development finance and funding

...: Cornell University Press. Booz, Allen. 2007. Lower Manhattan market analysis report. New York, N.Y. (2 Lafayette St., New York, N.Y. 10027): Office of Lower Manhattan Development. Cheikhrouhou, H. 2007. Structured finance in Latin America: channeling pension funds to housing, infrastructure, and small businesses. Washington, D.C., World Bank. Choi, C. 2009. Removing Market Barriers to Green Development: Principles and Action Projects to Promote Widespread Adoption of Green Development Practices. Journal of Sustainable Real Estate, 1, 107–38. Collier, N. S., Collier, C. A., & Halperin, D. A. 2007. Construction funding: the process of real estate development,...
11 Pages(2750 words)Essay

Capital structure

...not be realized in good time to pay the sum value as per that date. When this situation arises, the business becomes ripe for takeover according to the provisions of business law. In the light of these, careful considerations have to be made before the business can settle on certain kinds of financing and the activities upon which funding is needed. Careful evaluation can give the business competitive advantages, since it is able to manage successful business investments and other ventures that would have otherwise been impossible with its constrained funds, Having considered debt options, the business has to decide on various investment options that have the lowest weighted average cost...
10 Pages(2500 words)Research Paper

Capital Structure

...Capital Structure In the present competitive scenario, companies are required to conduct business operations with incorporating the aspect of better investment management. In this similar context, I identified that the capital requirement of a firm is dependent on two sources that mainly include equity and debt. 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.d.). In businesses, sources of capital comprise equity and debt, which...
2 Pages(500 words)Essay

Business Finance and the Capital Structure

...Finance and Accounting Business Finance and the Capital Structure Answer Capital can be raised by both equity and debt financing. Both equity financing and debt financing have certain advantages and disadvantages. Advantage of Equity Financing The main advantage of equity financing is that the owner is able to share the risk and return of the ownership with the equity shareholders. It is not compulsory to repay the equity investments. In case of equity financing the owner needs not pay any fixed rate of interest like debt financing and payment of dividend to the equity share holders is also not compulsory. Disadvantage of Equity Financing Investing in equity financing dilute the controlling power of the owner of the company. Board... of...
3 Pages(750 words)Research Paper

Capital Funding Structure

...Capital Funding Structure Table of Contents Managing capital structure 2 Capital structure theories 3 Maximization of shareholders wealth 6 Analysis of capital structure of Hallin Marine Subsea Intl and peer companies 8 Recommendation for effective capital structure 10 References 12 Introduction The financial structure is linked with the market conduct by theoretical literature emphasizing the strategic use of leverage. Any change in capital structure significantly impacts the pricing...
10 Pages(2500 words)Case Study
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Marine Finance(Capital Funding Structure) for FREE!

Contact Us