This document discusses capital structure and four main capital structure theories. It defines capital structure as the combination of debt and equity used to finance long-term operations. Sources of capital include debt and equity financing for multinational subsidiaries. Four main theories covered are the net income approach, net operating income approach, traditional approach, and Modigliani-Miller approach. The document provides brief descriptions of each theory and their key assumptions.

1. Capital Structure
Presented by Devendra ojha
BBA v sem
Mail-id ojhad25@gmail.com

2. Outline
Meaning of Capital Structure
Source of capital
Capital structure of multinational firms
Four main capital structure theories

3. Meaning of Capital Structure
Capital Structure refers to the
combination or mix of debt and equity
which a company uses to finance its
long term operations.

4. Source of Capital

5. CAPITAL STRUCTURE OF
MULTINATIONAL FIRMS
Capital structure for the multinational firm
involves a choice between debt and equity
financing across all its subsidiaries. A
MNC can have more debt in its capital
structure if its cash flows are more stable
and it has a low credit risk.

6. Four main capital structure
theories
 Net income approach
 Net operating income approach
 Traditional approach
 Modigliani and miller approach

7. Net income approach
 This approach being propounded by durand
 The cost of debt is lower than the cost of equity
 The risk perception of investors is not changed
by the use of debt.
 There are no tax.

8. Net operating income approach
 This approach also propounded by durand
 The cost of debt is lower than the cost of equity
 Cost of debt are constant
 If we increase proportion of debt capital than
overall cost of capital decrease but same time
interest burden on company increase
 These are no corporate tax .

9. Traditional approach
 increase in leverage does not affect the overall
cost of capital and the value of the firm
 Higher demanding of return
 Point of Optimum capital structure

10. Modigliani- miller approach
 Feature
1. Capital markets are perfect
2. Homogeneous risk classes of firm
3. Expectations about the net operating income
4. Dividend payout ratio 100%
5. No corporate taxes