Establishing a Capital Structure for a Firm Is Not Simple

question 54

Essay

Establishing a capital structure for a firm is not simple. Although financial theory guides the process,there is no simple formula. List and explain four main items that one should consider in determining the capital structure.

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Definitions:

Straight-Line Depreciation

A method of allocating the cost of a physical asset evenly over its useful life.

Average Rate of Return

The ratio of the average annual profit to the initial investment, expressed as a percentage, used to assess the profitability of an investment.

Estimated Annual Net Income

The projection of a company's net income over the course of a future year, based on current trends and expectations.

Straight-Line Depreciation

A way of allocating the expenditure of a physical asset in uniform annual installments over its lifespan.