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Capital structure is an important issue in setting rates charged to customers by regulated utilities in the United States. The utility company has the right to choose any capital structure it deems appropriate, but regulators determine an appropriate capital structure and cost of capital for ratemaking purposes. [3]
The Modigliani–Miller theorem (of Franco Modigliani, Merton Miller) is an influential element of economic theory; it forms the basis for modern thinking on capital structure. [1] The basic theorem states that in the absence of taxes , bankruptcy costs, agency costs , and asymmetric information , and in an efficient market , the enterprise ...
Based on the factors that decide the structure of the market, the main forms of market structure are as follows: Perfect competition refers to a type of market where there are many buyers and sellers that feature free barriers to entry, dealing with homogeneous products with no differentiation, where the price is fixed by the market.
A graphical representation of Porter's five forces. Porter's Five Forces Framework is a method of analysing the competitive environment of a business. It draws from industrial organization (IO) economics to derive five forces that determine the competitive intensity and, therefore, the attractiveness (or lack thereof) of an industry in terms of its profitability.
Financial manager often uses the Theory of capital structure to determine the ratio between equity and debt which should be used in a financing round for a company. The basis of the theory is that debt capital used beyond the point of minimum weighted average cost of capital will cause devaluation and unnecessary leverage for the company.
In economics, industrial organization is a field that builds on the theory of the firm by examining the structure of (and, therefore, the boundaries between) firms and markets. Industrial organization adds real-world complications to the perfectly competitive model, complications such as transaction costs , [ 1 ] limited information , and ...
The comparative advantage is due to the fact that nations have various factors of production, the endowment of factors is the number of resources such as land, labor, and capital that a country has. Countries are endowed with multiple factors which explains the difference in the costs of a particular factor when a cheaper factor is more abundant.
The capital gains on the Dow Jones Industrial Average have been 1.6% per year over the period 1910–2005. [3] The dividends have increased the total "real" return on average equity to the double, about 3.2%. The sensitivity to market risk (β) is unique for each firm and depends on everything from management to its business and capital structure.