Unit 1 Final Project Overview:
The Final Project is due at the end of Unit 5.
Overview
The purpose of the Final Project Research Paper is to examine capital-structure theory, issues, and debates, while showing how capital-structure choices affect a firm’s return on investment (ROI) and its risk profile.
Directions
Your Assignment is to select a publicly-held company and to analyze its capital structure, applying the theories and principles found in Chapter 15 of the text.
The structure of your research paper should include:
• A preview of capital structure issues
• Business and financial risks related to capital structure
• Modigliani and Miller’s [MM] capital-structure theory
• Criticisms of the MM model and assumptions
• Capital structure evidence and implications
• Estimating the firm’s optimal capital structure
A firm’s optimal capital-structure is that mix of debt and equity that maximizes the stock price. At any point in time, management has a specific target capital structure in mind, presumably the optimal one, though this target may change over time. For example, financial management may choose a 50% equity financing [stock] and 50% debt [bond] financing.
Several factors influence a firms’ capital structure, including:
• Business risk
• Tax position
• The need for financial flexibility
• Managerial conservativeness
• Growth opportunities
Business risk is the riskiness inherent in the firm’s operations if it uses no debt.
This report is intended to be a capital structure analysis of your selected public company. Your paper is intended to be an executive summary of your analysis, and is limited to a minimum of 5 – 7 pages of text, excluding the title page, table of contents, graphs,
