Corporate Finance: Capital Structure and Payout Policy

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Running head: CORPORATE FINANCE
CORPORATE FINANCE
Name of the Student
Name of the University
Author’s Note

1CORPORATE FINANCE
Table of Contents
Week 5.............................................................................................................................................2
Discussion: Capital structure of company Forum (13/2/2019)....................................................2
Discussion: Capital structure of company Forum (14/2/2019)....................................................3
Week 6.............................................................................................................................................3
Discussion: Payout policy of company Forum (due date 13/2/2019)..........................................3
Discussion: Payout policy of company Forum (due date 14/2/2019)..........................................4
Discussion: Payout policy of company Forum (16/2/2019)........................................................4
References........................................................................................................................................6

2CORPORATE FINANCE
Week 5
Discussion: Capital structure of company Forum (13/2/2019)
The rise in the value of firm is impacted by the increase in the market price of the shares
as well as securities which gets accomplished if and only if there is presence of a sound capital
structure. Full utilization of the available funds of the firm totally is a sign of efficient capital
structure due to the reason that it proportionately distributes it resources significantly ensuring
the fact that the fund allocation is optimal and no over capitalization or under-capitalization is
being done. Along with that it is also being ensured through an optimal capital structure that the
future returns will be more than or equal to the present value of investments made. It also assists
in balancing the proportion of debts and equity based on minimizing the cost of capital and
maximizing the returns. At times of poor earnings, the firms are affected by low liquidity and
hence efficient capital structure provides the fundamental plinth for maintaining an effective
solvency position and helps to control the liquidity situation through compensating the payments
of interest, debt to suppliers and many more (Modules.lancaster.ac.uk, 2019). Flexibility in
expansion as well as reduction of debt capital with respect to fluctuation in the market condition
optimally helps a firm to minimize financial risk like payments of interest charges, repayment of
principal debt within stipulated timeframe. The decisions regarding capital structure is also
dependent upon the trading on equity where excess earnings over cost of debt will be given to
the shareholders. Whether it be the sum of reinvested capital and borrowed capital, irrespective
of that fact still if the rate of return over the total capital employed exceeds the rate of interest
upon the debt capital or the dividend rate upon the preference shares then trading on equity takes
place and influences the decision making of the capital structure of any company (Lemmon &
Zender, 2019).