Purchase Solution

Capital Response for Division of Cash Flows

Not what you're looking for?

Ask Custom Question

Can someone please provide some assistance with responding to the students Cynthia's post below. The question the student answered was: what are the most critical concepts involved with successful capital structure patterns? Can certain steps be overlooked? Why or why not?

I need help with writing a response to the students post below. My response has to be significant and advanced the discussion and needs to be between 250 and 350 words. Thank you so much in advance for all your help. I really appreciate it!

Cynthia's post below
Capital structure refers to the division of the cash flows of a firm. The firm divides the cash flows by following two concepts; that is, a fixed component as well as a residual component. The fixed component looks at meeting obligations that are concerned with debt capital, while the residual component is more concerned with the equity shareholders. In the arrangement of capital, short term borrowings are excluded. A certain degree of permanency is employed when dealing with the exclusion of financing from short-term sources. The structure involves the following pattern: First, cost minimization. When the firm determines the proper way to arrange its sources of funds, then cost can be kept at the lowest level (Baker & Martin, 2011).
Secondly, the firm increases in the price of shares. In this case, it maximizes the shares' market price, through the process of raising earnings for every share of an ordinary shareholder. Third is the investment opportunity. Through capital structure, a firm is able to find new funds, thereby creating opportunities in investment. It might also raise the confidence that the suppliers of debt have. Fourthly, the capital structure increases a country's investment and growth rate, through expanding the opportunity of a firm to engage in investments that generate wealth, in the future (Baker & Martin, 2011).
No step can be overlooked, because each plays a critical role in the maximization of wealth. For instance when a firm minimizes its costs, it is able to save more funds that can further be used in more investments. These investments could be expanded internationally, when the country's growth rate increases (Chang, 2008).

Attachments
Purchase this Solution
Solution Summary

This solution explains issues relating to capital structure. The sources used are also included in the solution.

Solution Preview

Step 1
The student says that a capital structure is a division of the cash flows of a firm. Actually, capital structure does not refer to the cash flows but to the mix of a company's long term debt, short term debt, common equity, and preferred equity. Capital structure refers to how the firm finances its operations and growth by using different sources of capital. Further, short term borrowings are a part of the capital structure of the firm. Cost minimization is not the first objective of capital structure. ...

Purchase this Solution
Free BrainMass Quizzes
Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.

Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.

Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

View More Free Quizzes
Related BrainMass Solutions

  • Dandy Products, Denver Corp, The Seattle Corp: ROR, cost of capital, NPV, IRR

    As the director of capital budgeting for Denver Corporation, you are evaluating two mutually exclusive projects with the following net cash flows: Project X Project Z Year Cash Flow Cash Flow 0 -100,000

  • Operating Division

    558789 Operating Division Your firm would like to evaluate a proposed new operating division. You have forecasted cash flows for this division for the next five years, and have estimated that the cost of capital is 12%.

  • Net present value decisions

    Jeff Hensel, the manager of Chester's commercial construction division, often overstates the projected cash flows associated with his proposals, and thereby inflates their net present values.

  • NPV Detailed Calculations

    You estimate that the investments will produce the following net cash flows: Year Project A Project B 1 $5,000,000 $20,000,000 2 10,000,000 10,000,000 3 20,000,000 6,000,000 a.

  • Roles of a Finance Department

    One of the roles of the finance department is in performing discounted cash flow valuation for the project at hand.

  • Decision process for eliminating a product at Working Computers Inc.

    While the internal rate of return (IRR) assumes the cash flows from a project are reinvested at the IRR, the modified IRR assumes that all cash flows are reinvested at the firm's cost of capital.

  • Strident Marks (On Your Mark): Calculate Key Financial Metrics for this Capital Budgeting Project

    Returns the modified internal rate of return for a series of periodic cash flows. MIRR considers both the cost of the investment and the interest received on reinvestment of cash.

  • Capital Budgeting

    Higher the discounting rate, the lower is the Present Value of the cash flows. The IRR of project B is 18%. This means that when the cash flows are discounted at 18%, the NPV of the project is zero.

  • Metrics and make a recommendation for project

    Similarly IRR of 19% is more than 14% which is acceptable. 3) MIRR While the internal rate of return (IRR) assumes the cash flows from a project are reinvested at the IRR, the modified IRR assumes that all cash flows are reinvested at the firm's cost

View More Related Solutions