Capital Structure and the Dividend Policies

Paper Summary:

This paper examines the role of financial management, which is to choose a correct financial mix that gets a return as per the current cost of money and is also commensurate with the type of assets that the financing has been used for. Differing options are analyzed in order to determine the method for getting the best yield. Various theories are discussed in order to reach the conclusion as to which financial methods are best applicable to businesses.

Introduction
Analysis
Investment in Firms
Miller-Modigliani Theorem
Impact of Taxes
Impacts of Bankruptcy
Dividend Signaling
Clientele Effect
Conclusion
Bibliography

From the Paper:

"All stockholders in a business expect to earn money from the business and this is given in the form of returns and these are dividends and stock buybacks. The method to be used depends on the preferences and types of stockholders who have invested in the business. The main aim in any business is always to achieve the highest possible returns. One of the best ways of making money for the shareholders is to have a good amount of debt. This happens as the company management has only got to makes fixed payment for debt. These payments are composed of the repayment of the debt and the concerned interest. There is the greatest requirement to pay these in time, as if these are not paid, the stockholder may end up loosing the business. The origin of debt can be from various methods and for small private businesses comes from bank loans. For large organizations whose shares are publicly traded, it comes from bonds. It should be remembered that all interest bearing liabilities, both of the short term variety as well as the long term variety are in the category of debt. (Corporate Finance: Lecture Note Packet 2)"

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