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    Capital Structure: effect of more debt and dividend payments

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    Is a firm's value increased when more debt is added to its Capitalization?

    Do dividends matter? Are they relevant?

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    Solution Preview

    If you think of the entry to record debt (increase asset and increase debt), the effect to the capitalization of a company is zero. But if you think in terms of ratio analysis, debt clearly impacts the current ratio, the debt to equity ratio, the working ...

    Solution Summary

    The solution clearly explains the effect to the balance sheet and to ratio analysis when debt is added. The dividend discussion includes the same analysis plus four reasons why dividends can be advantageous.