Figure 1.2
Using the figure above, identify the labeled part.
-Label Y: ______________________________
Definitions:
Leverage
Use of borrowed capital for investment with the aim to multiply the potential returns, while also increasing the risk of loss.
Independence Hypothesis
In capital structure theory, the original restrictive model by Modigliani and Miller that shows stock price to be independent of capital structure.
Modigliani
Refers to Franco Modigliani, an economist known for his work on the Modigliani-Miller theorem, which addresses the valuation of stocks and corporate taxes.
Miller
Miller refers to the Miller Modigliani theorem or Miller's theory, which deals with the capital structure of a company and the relationship between the return required by investors and the company's equity and debt.