GB 550 Capital Structure MM Theory

Unit 1 Final Project Overview:

The Final Project is due at the end of Unit 5.

Overview

The purpose of the Final Project Research Paper is to examine capital-structure theory, issues, anddebates, while showing how capital-structure choices affect a firm’s return on investment (ROI) andits risk profile.

 

Directions

Your Assignment is to select a publicly-held company and to analyze its capital structure, applying thetheories and principles found in Chapter 15 of the text.

The structure of your research paper should include:

 

A preview of capital structure issues

Business and financial risks related to capital structure

Modigliani and Miller’s [MM] capital-structure theory

Criticisms of the MM model and assumptions

Capital structure evidence and implications

Estimating the firm’s optimal capital structure

 

A firm’s optimal capital-structure is that mix of debt and equity that maximizes the stock price. At anypoint in time, management has a specific target capital structure in mind, presumably the optimal one,though this target may change over time. For example, financial management may choose a 50%equity financing [stock] and 50% debt [bond] financing.Several factors influence a firms’ capital structure, including:

 

Business risk

Tax position

The need for financial flexibility

Managerial conservativeness

Growth opportunities

 

Business risk is the riskiness inherent in the firm’s operations if it uses no debt.

This report is intended to be a capital structure analysis of your selected public company. Your paperis intended to be an executive summary of your analysis, and is limited to a maximum of 5 - 7 pagesof text, excluding the title page, table of contents, graphs, charts, tables, etc.This summary report of your selected company’s capital structure should convey the quality, depth,and completeness of your capital structure analysis, without going into excessive detail.

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    GB 550 Capital Structure MM Theory

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