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Using this methodology, the model closely mimics many business cycle properties. Yet current RBC models have not fully explained all behavior, and neoclassical economists are still searching for better variations. The main assumption in RBC theory is that individuals and firms respond optimally over the long run.
The trade-off theory of capital structure is the idea that a company chooses how much debt finance and how much equity finance to use by balancing the costs and benefits. The classical version of the hypothesis goes back to Kraus and Litzenberger [ 1 ] who considered a balance between the dead-weight costs of bankruptcy and the tax saving ...
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]
When distributing the capital back to the investor, hopefully with an added value, the general partner will allocate this amount based on a waterfall structure previously agreed in the Limited Partnership Agreement. A waterfall structure can be pictured as a set of buckets or phases. Each bucket contains its own allocation method.
For example, the most common use is to determine if a stock’s current value is in alignment with its expected return. This helps investors determine if the stock is overvalued or undervalued.
The two main capital structure theories as taught in corporate finance textbooks are the Pecking order theory and the Trade-off theory.The two theories make some contradicting predictions and for example Fama and French conclude: [3] "In sum, we identify one scar on the tradeoff model (the negative relation between leverage and profitability), one deep wound on the pecking order (the large ...
When it comes to money, it always helps to take a step back, acknowledge your emotions and weigh the risks and rewards. Hear an expert's take on 8 common mindsets that could be holding you back ...
BHCs possess adequate capital. The capital structure is stable given various stress-test scenarios. Planned capital distributions, such as dividends and share repurchases, are viable and acceptable in relation to regulatory minimum capital requirements. The assessment is performed on both qualitative and quantitative bases.