Why Is the H.O. Model Called the Factor-Proportions Theory

question 59

Essay

Why is the H.O. model called the factor-proportions theory?

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Definitions:

Capital Structure

The mix of different forms of financing used by a company, such as debt, equity, and other types of financing.

Cost of Equity

The return that investors expect for providing capital to a company, often estimated using models like the Dividend Discount Model (DDM) or the Capital Asset Pricing Model (CAPM).

Unlevered Cost of Capital

Refers to the cost of capital for a firm that has no debt, representing only the cost of equity.