Learning Outcome Statements

1. Capital structure irrelevance theory

a. explain the Modigliani-Miller propositions regarding capital structure, including the effects of leverage, taxes, financial distress, agency costs, and asymmetric information on a company's cost of equity, cost of capital, and optimal capital structure;

2. Other capital structure theories

a. explain the Modigliani-Miller propositions regarding capital structure, including the effects of leverage, taxes, financial distress, agency costs, and asymmetric information on a company's cost of equity, cost of capital, and optimal capital structure;

3. The static trade-off theory

b. describe target capital structure and explain why a company's actual capital structure may fluctuate around its target;

4. Practical issues in capital structure policy

c. describe the role of debt ratings in capital structure policy;

d. explain factors an analyst should consider in evaluating the effect of capital structure policy on valuation;

e. describe international differences in the use of financial leverage, factors that explain these differences, and implications of these differences for investment analysis.