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The Financial Structure Influence on the Cost of Capital and Enterprise Value

Author

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  • Nicoleta BARBUTA-MISU

    () (Dunarea de Jos University of Galati, Romania)

Abstract

All enterprises seek to maximise the value of the assets and minimize the costs. Thus, they will explore the weighting of each way of financing (own funds or debt) in total financing, i.e. optimize the financial structure of the enterprise and maximising its value. On the other hand, they are trying to determine the weighting of each way of financing, that leads to maximising of the enterprise value and to minimise the cost of capital. So, the paper present the arbitrage used by an investor into an enterprise without debts and into an enterprise indebt, using the model Modigliani and Miller, relating to the financing policy neutrality towards the average cost of capital and the value of the enterprise.

Suggested Citation

  • Nicoleta BARBUTA-MISU, 2009. "The Financial Structure Influence on the Cost of Capital and Enterprise Value," Economics and Applied Informatics, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, issue 2, pages 77-84.
  • Handle: RePEc:ddj:fseeai:y:2009:i:2:p:77-84
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    File URL: http://www.ann.ugal.ro/eco/Doc2009_2/Misu.pdf
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    More about this item

    Keywords

    capital structure; cost of capital; tax savings; return on assets; return on equity;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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