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F. WHAT DOES CAPITAL STRUCTURE THEORY ATTEMPT TO DO? WHAT LESSONS CAN BE LEARNED FROM CAPITAL STRUCTURE THEORY? ANSWER: CAPITAL STRUCTURE THEORY PROVIDES SOME INSIGHTS INTO THE VALUE OF DEBT VERSUS EQUITY FINANCING. AN UNDERSTANDING OF CAPITAL STRUCTURE THEORY WILL AID A MANAGER IN FINDING HIS OR HER FIRM・S OPTIMAL CAPITAL STRUCTURE. MODERN CAPITAL STRUCTURE THEORY BEGAN IN 1958, WHEN MODIGLIANI AND MILLER PROVED, UNDER A VERY RESTRICTIVE SET OF ASSUMPTIONS, INCLUDING THE ASSUMPTION OF NO TAXES, THAT A FIRM・S VALUE IS UNAFFECTED BY ITS CAPITAL STRUCTURE. MM・S RESULTS SUGGEST THAT IT DOESN・T MATTER HOW A FIRM FINANCES ITS OPERATIONS BECAUSE CAPITAL STRUCTURE IS IRRELEVANT.
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