Capital Structure Model
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description
finance capital structure leverage risk financial inclusion
Transcript of Capital Structure Model
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Capital Structure
K K Ray IIM Raipur
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MM Proposition Without taxes
Cost of Capital (%)
Debt/Value Ratio (%)
rs
WACC
rd
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M&M Proposition II
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WACC (Traditional View)
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Glaxo Holex
Debt Equity Ratio 60% 0
Equity 40% 100%
Capital Requirement (lakh) 10.00 10.00
EBIT(lakh) 2.00 2.00
Cost of debt 10% 0
Cost of equity 13% 12%
Presume that your equity investment 20% in the high valued firm. Prove the importance of Modigliani and Miller model.
MMs Arbitrage Proof
Two companies, one with debt and another without debt in their respective capital structure and absence of corporate tax.
![CAPITAL BUDGETING, VALUATION AND PERSONAL TAXES and...Capital Asset Pricing Model (CAPM) of Sharpe [1964], Lintner [1965] and Mossin [1966] with MM's model of capital structure. 3](https://static.fdocuments.net/doc/165x107/6014d6c0d5746a229155463f/capital-budgeting-valuation-and-personal-taxes-and-capital-asset-pricing-model.jpg)
