Explore BrainMass
Share

Explore BrainMass

    Firm’s capital structure

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    I need help on this assignment please: A firm's capital structure is determined by more than just a component cost for each source of capital and is not fixed over time. Rather, the capital structure of a firm is determined by conditions in the domestic and international economies and it should also reflect changing conditions in the economy. In other words, the relationship between risk and return should be the major consideration in establishing the capital structure of the firm and the value of the firm.

    Questions: Address all of the following questions in a brief but thorough manner.

    1. What is the basic relationship between risk and return and how is this reflected in the value of the firm's stock? The cost of debt?
    2. What are the primary factors that should be considered when establishing a firm's capital structure?
    3. What are the primary differences and/or similarities between financial risk and business risk?

    The final paragraph (three or four sentences) of your initial post should summarize the one or two key points that you are making in your initial response.

    © BrainMass Inc. brainmass.com October 10, 2019, 8:19 am ad1c9bdddf
    https://brainmass.com/business/finance/firms-capital-structure-618905

    Solution Preview

    The response addressed the query is posted in 646 words with APA References.
    //Capital structure is a method of structuring the finance of an organization with the composition of equity, debentures, and hybrid securities. In the process of forming a capital structure, the relationship between risk and return should be analyzed so as to form an effective structure. In this discussion, we will exhibit the relationship between risk and return and this reflected in the value of the firm's debt. The discussion will also be made on the cost of debt//.
    The relationship of risk and return is an important study while forming the structure of an organization. The study will highlight the amount of return with respect to the risk of investment. Risk and return follow three basic relationships, which are the positive, negative, and curvilinear relation. Positive relation shows that there is a direct relationship between risk and return, that is, higher the risk, higher will be the returns or lower the risk, lower will be the returns. In this approach, it has been considered that the managers are risk-averse, and they have already considered a respected amount of risk to ...

    Solution Summary

    The expert examines the firm's capital structures. The response addressed the query is posted in 646 words with APA References.

    $2.19