Theory On Capital Structure Finance Essay - Free Essay Example

Theory on capital structure: Capital structure is the combination of debt and equity. Asymmetric information, tax benefits associated with debt use, bankruptcy cost and agency cost are some important theories that are used to explain the capital structure decisions. Bankruptcy costs are the cost obtained when the theoretical probability that the firm will default on funding is greater than zero. Bankruptcy cost could be both direct and indirect. Examples of direct bankruptcy costs are the approved and administrative costs in the bankruptcy process which are bankruptcy filing fees and court charges, accounting and other professional costs. Haugen and Senbet (1978) argued that if one assumes that capital market prices are competitively determined by reasonable investors then bankruptcy costs must be insignificant or unreal. Examples of indirect bankruptcy costs are the loss in earnings acquired by the firm as an outcome of the refusal of interested party to do business with them. Customer reliance on a firms goods and services and the solvency of firms are affected by high probability of bankruptcy (Titman, 1984). Customers may be less willing to buy its goods and services from a firm that has financial difficulties due to the risk that the firm may not be able to meet its obligations. Bankruptcy is simply the transfer of ownership from one security holder to another. Th e theory is that bondholders are no less sensible than stockholders. For suppliers and customers it is inappropriate to assume that firm has disappeared as an entity if bondholders are in control. It is stress-free to terminate of firms that are or have been in agony and estimation that impending bankruptcy led to a reduction in product demand. Capital structure of the firm can also be explained in rapports of the tax benefits linked with the use of debt. Green, Murinde and Suppakitjarak (2002) identified that tax policy has a crucial effect on the capital structure decisions of firms. Corporate taxes accept firms to deduct interest on debt in computing taxable profits. This recommends that tax is imitative from debt would lead firms to be totally financed through debt. Capital structure is also known as the financial structure of a firm. Modigliani and Miller (1958) were among the first ones to meaningful the problem of capital structure and they claimed that capital structur e was separated in determining the firms value and its future performance. The value of the firm can be improved by the use of debt as interest expenses can be subtracted from taxable corporate income. But increase in debt results in an increased chance of bankruptcy. Hence, the finest capital structure signifies a level of leverage that stabilize bankruptcy costs and remunerations of debt finance. The bigger the probability of bankruptcy a firm outside as the outcome of increase in the cost of debt, the less debt they use in the issuance of new capital (Pettit and Singer, 1985). On the other hand, Lubatkin and Chatterjee (1994) as well as many other studies have proved that there exists a connection between capital structure and firm value. Modigliani and miller (1958) claimed that an optimal capital structure occurs when the risk of going bankrupt is offset by the tax savings of debt. However, Brigham and Gapenski (1996) said that, in scheme the MM model is valid, but in practi ce, bankruptcy costs exist and these costs are directly comparative to the debt level of the firm. Capital structure increases the probabilities of financial distress and bankruptcy. Firms face costs of financial distress when they are incapable to pay debt. They will have high debt relations if these budgets are zero or minor (Scott, 1976; Kim, 1978). Since costs of financial distress are non-trivial, firm can actually go bankrupt, firms with high prospect of bankruptcy will have low debt ratio. The likelihoods of bankruptcy for firms with large reserve resources will be moderately less, but unlevered firms with high profitability and huge reserve funds would have great competitive advantage. Model of bankruptcy Bankruptcy and liquidation Theoretically, a rise in debt level causes an increase in bankruptcy costs. Therefore, they argue that an optimal capital structure can merely be conquered if the tax sheltering welfares convey that an increase in debt level is equal to the bankruptcy costs. In this case, managers of the firms should be able to sort when this optimal capital structure is achieved and try to maintain it at the same level. Awareness about capital structures has frequently been derived from data from developed economies that have many institutional likenesses (Booth et al., 2001). It is essential to note that different countries have different institutional arrangements, principally with respect to their tax and bankruptcy codes, the present market for corporate control, and the roles banks and securities markets play. A similar argument can be made with respect to the tie between capital structure and liquidation recommended in a recent paper by Allen (1986). In his model, bankruptcy is exposed to bring a delay in investment by the firm that sets the firm at a strategic weakness that it likely to lead to liquidation in the end. Allen, however, openly assumes that stockholders are for some cause prohibited from repurchasing the debt at its current market value to avoid bankruptcy. Bankruptcy and Asymmetric Information Liquidation and bankruptcy decisions are made separable, however Webb claims that asymmetric information may, under positive circumstances, cause in the frequency of bankruptcy costs as a drain away from the firm. He considers two kinds of asymmetric information. First, indecision about the formal bankruptcy court settlement may lead to circumstances in which bankruptcy costs would not be concealed through informal settlement. Second, stockholders are expected to know the true going apprehension value of the firm qualified to its liquidation value, but bondholders are undefined unless a certification cost to a third party is incurred. The cost of verification is principally the bankruptcy cost, and it may be acquired depending on the bondholders estimated gain from formal settlement would not eagerly liquidate the firm even if the liquidating value exceeds the going concern value. Therefore a debate has been put forward that the two asymmetric information cases reflected not to pri me to the frequency of bankruptcy costs as a drain away from the parties to the firm. Market solution to the problem of bankruptcy costs Scientists begin by repeating their original market result to the bankruptcy cost problem. The bankruptcy cost can be escaped by amending the firms capital structure to an ideal prior to the frequency of bankruptcy. This familiar reorganization of the capital structure can be accomplished in a number ways. The stockholders can repurchase the debt at its present market value. Alternatively, the bondholders can purchase the stock. Then strangers can purchase both the debt and equity the entire market value. With rational performance and unrestricted arbitrage, the charges of bankruptcy must be inadequate to the inferior of transaction costs earned through financial markets and the cost incurred through the court system. Once debt has been wholly eliminated, a new debt can be issued that takes advantage of the corporate tax subsidy

Womens Rights Are Human Rights by Hilary Clinton

Hilary Clintons â€Å"Women’s rights are Human rights† On September 5, 1995, Hilary Clinton gave a speech at the United Nations Fourth World Conference for womens equality, in Beijing, China. Present at the conference were were, 189 governments and more than 5000 representatives of non governmental organizations. The issue that Mrs. Clinton is addressing in this speech is the disrespect towards women and the violation of their rights. She uses pathos an emotional appeal, to get her audience to feel the same way that she does about the issue. She also uses exigence to bring the audience deeper into the conversation. She has been fighting for women’s rights for many years, and she wants her audience to realize how much of a problem it has become and that it needs to be stopped. Her goal is to make her audience believe that women’s rights are human rights through exigence and pathos. Mrs. Clinton also uses the rhetorical element of kairos in her speech. She picks a perfect moment in time, and location to deliver her speech. Though women’s rights is a problem all over the world, it is especially bad in China where the speech is taking place. Clinton is trying to address the issue where it is most relevant. There are many examples of emotional appeals in this speech, and that is how Mrs. Clinton convinces her audience that what she is articulating on is how this issue should be resolved. Through her speech Mrs. Clinton uses pathos to show how women are important toShow MoreRelatedHillary Clinton s Stance On Women s Rights1090 Words   |  5 Pages Hilary Clinton is a strong and effective choice to serve as a messenger and manager of women’s rights globally. She has proven herself as a fierce advocate for women’s rights due to her strong and consistent record of effectively championing women’s rights, economically and politically. 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Introduction . The Assaultive Behavior Displayed By...

Introduction The assaultive behavior displayed by psychiatric individuals in patient care settings has become a serious healthcare concern. Current research shows that the most common adverse event among hospitalized psychiatric patients is physical assault or fighting. â€Å"Thousands of assaults occur in American hospitals each year, including psychiatric units and emergency rooms, resulting in the labeling of such workplaces by some as occupationally hazardous† (Rueve Welton, 2008). This has led to increased cost of providing healthcare Services derived from additional diagnostic tests for injuries, treatment, destruction of facility property, and injury to staff and other individuals. Background Patient assault is the most commonly†¦show more content†¦When a patient-to-patient assault occurs, staff members are often stressed from fear of reprimand for lack of adequate observation (Luckhoff, et al.2013). This may lead to high turnover rates which further create understaffed units resulting in unsafe patient care ratios and demoralized staff. (Luckhoff, et al.2013). Furthermore, assault brings an increased chance of injuries which may lead to compromised health and even permanent disability. Taking these problems into account, it is evident that assault among patients can negatively impact the provision of healthcare services and management of care provided (Luckhoff, et al.2012). Significance The consequences of assault on patients can severely destabilize optimal well-being. According to the Occupational Safety and Health Administration (OSHA), in 2013, reported that the Bureau of Labor Statistics indicates that â€Å"psychiatric aides experienced the highest rate of violent injuries that resulted in days away from work, at approximately 590 injuries per 10,000 full-time employees. This rate is more than 10 times higher than the next group, nursing assistants, who experienced about 55 such injuries per 10,000 full-time employees. Registered nurses experienced about 14 violent injuries resulting in days away from work per 10,000 full-time employees†. OSHA (2013) recommends â€Å"A workplace violence prevention program can also fit effectively into a broader safety and health management system, and it can help

Photographic Properties Example For Students

Photographic Properties Question Answer Photographic properties effect Visbility, Density, Contrast Geometric Properties Effect Sharpness, Recorded Detail, Distortion Radiographic Density The overall blackness produced on the image after processing Controlling factor of Density mAs Influencing factors of Density kVp, Distance, Grids, Film-screen speed, collimation, anatomic part, anode heel effect, filtration, processing mAs= Quantity kVp= Quality The Law of Reciprocity mA x s = mAs (200mA @ .10s = 20 mAs) The minimal change needed to correct density errors is determined by multiplying or dividing mAs by 2. When greater change in mAs is needed.. multiply or divide by 4, 8, etc ___ kVp ___ Quantity of radiation striking the IR and ___ density. Increases, increases, increases Increasing kVp by 15% will ___ density (math) Double; __kVp x 1.15 = end kVp Decreasing kVp by 15% will ___ density (math) Cut in half; ___kVp x .85 = end kVp To MAINTAIN density when kVp increases by 15% Divide mAs by 2 kVp x 1.15 To MAINTAIN density when kVp decreases by 15% Multiply mAs by 2 kVp x .85 To reduce patient dose ___ kVp ___ mAs Increase; decrease As SID increase, the xray bream intensity is spread over a larger area, this decreases the overall intensity of the xray beam raching the IR Inverse Square Law I1/I2=SID2(squared)/SID1(squared) Density Maintenance Formula mAs1/mAs2=SID1(squared)/SID2(squared) Increasing SID needs ___ mAs More Grids Grids absorb the scatter radiation exiting the patient; Limiting the amount striking the IR and improves image quality; they also absorb some of the transmitted radiaion exiting the pt and reduce the amount of density produced on the radiograph Grids are ___ for pt ___ for film Bad; good The more efficient a grid absorbs scatter, the greater the increase in mAs is required Grid Conversion Factor mAs1/mAs2=GCF1/GCF2 Grid Conversion FactorS No grid 1 5:1 2 6:1 3 8:1 4 12:1 5 16:1 6 Film Screen Speed The greater the speed the greater the density; When the speed of the system changes; mAs should be changed Film Screen Speed Formula mAs1/mAs2=RS2/RS1 Anatomic Part Thickness of the anatomic part affects the amount of xray beam attenuation that occurs; thick-absorbs more (decreasing density) thin-absorbs less (increasing density) Anatomic Part Conversion For each 4-5cms of thickness, increase mAs x2 The best for an anode heel effect is ____ SID and a ___ field size Short, Large Anode Heel Effect The intensity along the longitudial axis of the primpart xray beam varies; this variance is called AHE AHE is a decrease in the primary beam intensity on the anode side of the tube Tube Filtration Contributors These variations are so slight that they would have very little effect on density Compensating Filters Contributors Produce uniform densities; mAs must be increased to maintain overall density Film Processing Contributors Variability in temp, chemisty and transporting can adversely affect density Digital Imaging Changes in mAs kVp SID will alter the I of radiation reaching the IR; The relationship b/t mAs and density is not the same for DR; Quality of image is adversly affected; Techs use more exposure then needed; The data can be altered to correct error in Relationship to Density: mAs Direct Relationship to Density: kVp Direct Relationship to Density: SID Inverse to the square of the SID Relationship to Density: Grids Inverse Relationship to Density: Relative Speed Direct Relationship to Density: Collimation Indirect Relationship to Density: Bigger pt Inverse Relationship to Density: Generator output Direct