Project Report on Capital Structure

Every organization requires funds to run and maintain its business the required funds may be raised from short term sources or long term sources or a combination both the sources of funds, so as to equip it self with an appropriate combination of fixed assets and current assets. Current assets to a considerable extent are financed with the help of short term sources. Normally, firms are expected to follow a prudent financial policy, as revealed in the maintenance of net current assets. These net positive current assets must be financed by long term sources. Hence long term sources of funds are required to finance for both.

Long term assets (fixed assets)

Net working capital (Positive Current assets).

A firm can easily estimate the required funds by a detailed study of the investment decision. In other words, anticipation of the require funds may be estimated analyzing the investments decision. Once anticipation of require funds is completed then the next step is financial for the manager to make decisions related to the finance or the selected investment decisions. Generally capital is raised from the prime source are

Equity

Debt

THEORIES OF CAPITAL STRUCTURE:

Different kinds of theories are have been

1.Net Income Approach(NI)

2.Net Operating Income Approach(NOI)

3.The Traditional Approach

4.Modigliani and Millar Approach(MM)

1.Net Income Approach (NI): This approach introduced by ‘Durand'. A firm can minimize weighted average cost of capital and increase the valve of the firm and share valve in the market.

This

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