CAPITAL STRUCTURE THEORIES | CAP CLASSES

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This video is all about Capital Structure Theories.

Capital structure theories explain the relationship between the cost of capital and capital structure.

If there is a change in the present capital structure of the company, will there be a corresponding change in cost of capital? In other words, whether Capital structure effects the cost of capital.

The answer for the above question is given by the Capital Structure Theories.

Capital Structure theories are broadly classified into two. They are
a) Capital Structure relevance theories and
b) Capital Structure irrelevance theories.

Total four capital structure theories i.e.,
1) Net Income Approach
2) Net Operating Income Approach
3) Traditional Approach
4) Modigliani Miller Approach
forms relevance and irrelevance theories.

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