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Exploring Corporate Finance: Theoretical Underpinning and Capital Structure Analysis

Question

Knowledge and Understanding tested in this assignment:

Explore the theoretical underpinning of corporate finance

• Compare and contrast approaches to finance

Learning Outcomes: Skills and Attributes tested in this assignment:

• Evaluate advanced financing and investment decisions

• Synthesise issues linking the financing and investment decision

Description of the assignment: See assignment brief below Any specific instructions:

See guidance notes below

• Your report structure should have the following section headings:

- Overview of capital structure theory

- Empirical evidence from research studies

- Analysis of the capital structure of two companies

• Your report should be submitted online as a single word document with text format at Arial  font, word size 11.

• Please use 1.5 line spacing.

• Long discussion should be divided into logical and coherent paragraphs.

• Use headings and sub-headings.

• You can use graphs, charts and tables in your report.

• All information must be appropriately sourced and referenced using the Harvard referencing system, both in-text and in the references list. Please ensure that all information used is from an appropriate source. Inappropriate sources of information, such as Wikipedia, tutor2you, Investopedia, descriptive websites etc., will result in a loss of marks.

• Please go to CASE for help if you are unsure about how to use Harvard referencing.

• You must state your SRN and the word count on the front page.

Empirical evidence from required reading - to what extent does this seem to support or contradict the capital structure theories mentioned above?

Analysis of the capital structures of two selected companies over time with reference to theories

What form does the borrowing of each company take?

Explanation of any major changes in capital structure over the past 5 years?

What strategic/historical factors might have determined the financing choices / capital structure of each company over time?

Consideration of risk & company value Use of relevant ratios to explain points made (calculations supplied in appendices)

Can capital structure theory explain the apparent policy of each firm?

What is the capital structure mix of each firm? What type of debt do they have (bonds, bank loans etc…)?

What are their respective gearing ratios, interest cover ratios etc…?

What appear to be the policies of your two companies in relation to how they finance their longterm operations (i.e. is to be highly geared or aim for a low level of gearing)?

Exploring the theoretical link between capital structure, WACC and firm value - does it appear that in terms of their capital structure policy - your chosen companies might subscribe to a particular capital structure theory?

For your two chosen companies - is there any empirical evidence to show that capital structure affects share price?

What could be the determinants of the financing choices that the two companies have made over time (i.e. to raise more debt or equity)?

To what extent might capital structure theory explain their different capital structures / policies?

What historical factors might explain their different capital structures?

What are the firms’ strategic goals? Did changes in capital structure allow the companies to achieve their strategic goals?

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