14

Capital Structure

“…the overall cost of money would be unaffected by capital structure if individuals could not differentiate risks.”1

 

Walter A. Morton

LEARNING OBJECTIVES

After reading this chapter, you will be able to:

  1. Understand the concept of capital structure and optimal capital structure.

  2. Discuss the various relevance theories of capital structure.

  3. Understand the irrelevance capital structure theories like Modigliani and Miller (MM) propositions.

  4. Analyse the various factors affecting a firm's capital structure.

FINANCE IN PRACTICE

The deregulation of the steel industry in 1991 resulted in an expansion in its production capacity. The financial institutions supported the private players to enter the steel industry by financing ...

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