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Essay / Research Paper Abstract
This 11 page paper considers the impact that underlying capital structure will have in the way that a company is valued. The paper discusses this with reference to the Edwards-Bell-Ohlson Model, the Dividend Discount Model (DDM) and Capital Asset Pricing Model (CAPM) and then considers the work of Modigliani and Miller and whter there is an optimum capital structure for a firm. The bibliography cites 6 sources.
Page Count:
11 pages (~225 words per page)
File: TS14_TEcapstrvalue.rtf
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Unformatted sample text from the term paper:
impart on the way it is valued. There are many tools or methods that can be used to value a firm, but it should be remembered that a share or
company will, at the end of the day, only be worth what investors are willing to pay for it. This will be dependant on many factors. To consider how the
value may be calculated we can look at the different models and how they may be impacted by the capital structure. To begin considering the impact of capital structure
on the way a firm is valued we need to review, quickly, the role of the risk and reward. Where a firm has a higher level of risk, which is
usually associated with higher borrowing, there will be an expectation of a higher level of return, either through the capital growth or though the dividends that are given. To consider
the impact of capital structure ewe need to look at models of corporate valuation, which may focus on the company as a whole or in terms of the share price
as it s the total market capitalisation that will result in the valuation place on a company by the market. A great many models have been developed that seek
to determine what a share price will be and how it is assessed. These may refer directly to the underlying assets and the book value such as the Edwards-Bell-Ohlson Models,
or refer to these assets in a less direct manner such as the capital asset pricing model. The Edwards-Bell-Ohlson Models is a
simple model that is used by accountants and money managers when assessing the value of different share prices that are traded publicly (Spivey and McMillan, 2003). The model is also
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