Author(s) :

1M. A. Veeraviswanath, V. Mohan Babu.

Volume/Issue :

Abstract :

A corporate’s financing of its real investments has recently attracted considerable attention from academics who have proposed various theories. This paper firstly studies the Gordon growth model and the weighted average cost of capital formula with the empirical tests and the sensitivity analysis. Then, we exam changes in a company’s market value concerning different combinations of capital structures and identify an arbitrage opportunity based on the Modigliani-Miller propositions. Finally, we investigate the relationship between a firm’s funding sources and its profit using panel data regression to figure out the optimal way to financing. These studies enable us to realize the fundamental relationship between a corporate’s price and its capital structure. In light of those studies, we could have some insightful ideas regarding funding decision-making in reality.

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