Discuss the theory of Optimal Capital Structure Essay

Discuss the theory of Optimal Capital Structure - Essay Example It gives the Weighted Average Cost of Capital (WACC). If the firm needs to have the lowest WACC, it should design its capital structure in such a way that the debt equity ratio is high which would bring down the WACC. The Optimal Capital Structure is that mix of debt and equity that maximizes the firm’s value or minimizes the cost of capital. There is no standard mix of debt and equity that maximizes the firm’s value, but each firm should strike a balance between risk and return thereby maximizing the share price, depending on its size and financial position. 1) If the firm size is small, it is difficult to make regular principal and interest payments in the event of shortages in generating substantial cash flow. Such firms face heavy fines and penalties by the creditors. Trade-off Theory: Maximum debt can be raised when the share price is at its maximum. If the firm raises any more debt, the share price will decline. The point where share price is maximum, it is the trade-off point; risk and return are both at their peaks. Any change would cause a disbalance in the position of risk and return. The maximum risk involved is that of bankruptcy and the maximum return is the maximum value of the shares. Below is a graph that depicts the trade-off between risk and return. Signaling Theory: This theory states that when the firm issues bonds for debt financing, it sends out a positive signal in the market. The cost of borrowing will be low as compared to the return the firm will get by putting money in that project. When the firm issues shares for equity financing, it gives out a negative signal in the market because it reflects the credibility of the company and insinuates that the firm cannot raise finance by borrowing from the market and that it is in dire need of funds. 5) Future flexibility. The firm should leave room for maneuvering and have flexibility in the capital structure

Conclusion report for the internship journey Essay

Conclusion report for the internship journey - Essay Example The major challenge was language difference, especially when interacting with customer and staff. However, I did my best to create a profitable impact and add value both to Guangdong and myself. There were both memorable and awkward situation during the two months in Guangdong but all these posed as lessons and opportunities to learn more. With the help of one of the staff, I gained confidence, customer relation skills, teamwork skills, intrapersonal and interpersonal communication skills. The main focus of my internship would be the opportunity to participate in the exhibition of Lingnan Folk Craftworks, Sparkling Flowers, and Ingenious Craftsmanship and Creativity. Sparkling flowers exhibition entailed displaying all collected works by Enamel while Craftsmanship and Creativity involved works by Canton Embroiidery. Exhibiting Lingnan Folk Craftworks expounded more on the culture and traditions of chines. I came to learn of their unique art, painting and paper cutting skills, as well as, their cultural believes. Lastly, I also came to learn of the Guangzhou residential furnishings with keen reference to the furniture tracing back to Ming and Qing dynasties. However, designs for furniture have changed and the old have been replaced with better designs or refurnished to be better. It was clear that the preferences and designs of people change with emerging