the static-tradeoff theory and the pecking order theory. Do
you think either theory represents how capital...
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the static-tradeoff theory and the pecking order theory. Doyou think either theory represents how capital structure decisionsare made in practice? If so, which theory is more closely alignedwith CFO actions? If not, what do these theories fail to captureabout the actions of financial managers.
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The capital structure is the mix between the equity debt and the revenue component that a firm uses to fund growth and operations The mix between the equity and capital maybe such that the cost of capital is minimized and the value of the firm is increased There are basically three theories the net income approach theory the static tradeoff theory more commonly known as MM theory devised by Modigliani and Miller hence the name MM and the Pecking order theory The Static TradeOff theory Devised by economist Modigliani and Miller in 1950s The theory suggests that a value of a firm is independent of the capital structure under certain assumptions namely 1 this theory applies in perfect market competition where the investors are free to buy and sell securities other assumptions in perfect market includes that there
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