What is capital structure

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Question - A few years after being appointed financial manager at Sedona Fabricators, Inc., you are asked by your boss to prepare for your first presentation to the Board of Directors. This presentation will pertain to issues associated with capital structure. It is intended to ensure that some of the newly appointed, independent board members understand certain terminology and issues. As a guideline for your presentation, you are provided with the following outline of questions.

(a) What is capital structure?

(b) How does financial leverage relate to firm risk and expected returns?

(c) Modigliani and Miller demonstrated that capital structure policy is irrelevant. What is the basis for their argument? What are their Propositions I and II?

(d) How does the introduction of corporate taxes affect the M&M model?

(e) How do the costs of bankruptcy and financial distress affect the M&M model?

Reference no: EM133102059

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