Capital structure theories - part 2
Taught by Ben Wilson · AI tutor support included
You'll learn the key capital structure theories that explain how debt and equity financing affect a company's cost of capital and overall value.
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In this lesson
- 0:00 Introduction to capital structure theory
- 1:04 How debt and equity affect cost of capital
- 2:19 Modigliani-Miller with tax model explained
- 3:21 Why tax deductibility favours debt financing
- 5:19 Practice questions on gearing theory
- 8:00 Summary of capital structure models
About this lesson
This lesson covers the Modigliani and Miller models—first their no-tax theory showing that capital structure doesn't matter, then their tax model revealing why companies are incentivised to take on debt. You'll explore the practical tension between cheap debt and increased shareholder risk, work through real exam-style questions, and understand the theoretical foundations behind corporate financing decisions tested in FM, AFM, and SBL papers.
Duration: 9m
Transcript
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