Examlex
Compare the conclusions and recommendations sections of a formal report.
Miller Model
A theory that incorporates corporate taxes and bankruptcy costs to determine the optimal capital structure for a firm.
Trade-Off Theory
The addition of financial distress and agency costs to either the MM tax model or the Miller model. When trade-off is added to either model, the optimal capital structure can be visualized as a trade-off between the benefit of debt (the interest tax shield) and the costs of debt (financial distress and agency costs).
Debt Financing
A method of funding in which a company raises capital by borrowing money, agreeing to repay the principal amount along with interest on a specified schedule.
MM Model
The Modigliani-Miller theorem, proposing that in perfect markets, the value of a firm is unaffected by its capital structure.
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