Capital Structure Analysis

Dianetta B. Fayall

Assignment #4: Capital Structure Analysis

Corporate Finance: The Core

Dr. William Cheng

August 27, 2011

What is Capital Structure?   Capital structure is when a company starts considering its proportion of short and long- term debt.   This process is normally referred to as a capital structure and sometimes called debt-to-equity ratio, which gives an organization an outlook on how risky a business is.   This analysis weighs heavily on an organization finances. Usually a company more heavily financed by debt poses greater risk, as this firm is relatively highly levered (Investopedia, 2011).
This report is about “Capital Structure Analysis”, and how” it depends on market imperfections, such as taxes, financial distress costs, agency costs, and asymmetric information”. (Berk & DeMarzo 2010, p.541) This report will also discuss Leverage and the risk of default.   Capital Structure also provides an organization with helpful analysis of for Long-term decisions, large expenditures and is very important to an organization's future. “With perfect capital markets, a firm’s security choice alters the risk of the firm’s equity, but it does not change its value or the amount it can raise from outside investors” (Berk & DeMarzo 2010, p.541).   These decisions can affect a company’s revenue and cost.   Taxes are considered to be the most significant imperfection that drives a capital structure. Most organizations uses leverage to shield and protect its income from taxes. “An organization with greater leverage is considered to be highly recommended competitor and is persistent to protect its market with limited risks of bankruptcy” (Berk & DeMarzo 2010, p.531).   This assignment focuses on Info Systems Technology. Info Systems Technology manufactures microprocessor chips for use in appliances and other applications. This problem shows how important Capital Structure is to an organization when determining which projects or investments an...