No More Worries!
Our orders are delivered strictly on time without delay No Lateness!
Our orders are delivered strictly on time without delay Our Guarantees
- Free Unlimited revisions
- Guaranteed Privacy
- Money Return guarantee
- Plagiarism Free Writing
Business Finance – Operations Management
firm’s capital structure is determined by more than just a component cost for each source of capital and is not fixed over time. Rather, the capital structure of a firm is determined by conditions in the domestic and international economies, and it should also reflect changing conditions in the economy. In other words, the relationship between risk and return should be the major consideration in establishing the capital structure of the firm and the value of the firm.
Address one of the following prompts in a brief but thorough manner.
What is the relationship between risk and return and how is this reflected in the value of the firm’s stock? The cost of debt?
What are the primary factors that should be considered when establishing a firm’s capital structure?
Sample Answer
Relationship Between Risk and Return and its Impact on Firm Value
The relationship between risk and return is fundamental to capital structure and firm value. Here’s how it plays out:
- Higher Risk, Higher Expected Return: Investors demand higher returns for taking on greater risk. A company with a riskier capital structure (more debt) is seen as riskier overall. Investors will only invest in such a company if they expect a higher potential return on their investment.
- Impact on Stock Value: A company’s stock price reflects its expected future cash flows discounted to their present value. If a company has a high-risk capital structure, the discount rate used
12% Discount
- Research Paper Writing
- Essay Writing
- Dissertation Writing
- Thesis Writing
Why Choose Us
- Money Return guarantee
- Guaranteed Privacy
- Written by Professionals
- Paper Written from Scratch
- Timely Deliveries
- Free Amendments