Essay: Capital structure of ford
To handle the capital structure ford, Disney and electronic Arts need to analyse three theories that define their structure. By considering the trade off theory which recognizes that capital raised by firms comprises of both debts and equity. However the theory recognizes that there is a gain of financing through debts because of the tax benefits Robin, (2001). However costs arises due to debt costs.
This approach gives an idea about determining the value of companies and how to select the optimal market structure. It gives the important factors to reflect on when choosing the most optimal capital structure; furthermore it argues that financing through debts is more advantageous than through equity. This is showed by the notion that as the ratio of debts to equity increases, there is an increase in marginal benefits of debts which eventually declines and the marginal cost of debts starts rising. The theory takes into account the role played by debts and equity in financing a company.
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