Capital Structure

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Across
  1. 2. Theory suggesting that companies prioritize financing sources to minimize costs and information asymmetry, favoring internal funds (retained earnings) first, followed by debt, and using equity only as a last resort.
  2. 5. Model where firms choose an optimal fixed leverage ratio by balancing the tax benefits of debt against the costs of financial distress.
  3. 7. In capital structure, the empirical finding that firms respond differently to tax increases versus tax cuts: borrowing more when taxes rise but not reducing debt when taxes fall.
  4. 9. The estimated company's total value beyond an explicit forecast period, often the largest component of a firm's total valuation.
  5. 11. Model where firms continuously adjust leverage toward an optimal target over time, balancing tax benefits against distress costs across multiple periods while preserving debt capacity for future investment needs.
  6. 12. The phenomenon where past events leave permanent effects on present outcomes. e.g. tax increases permanently raise leverage even after the tax is later reversed.
Down
  1. 1. Corporate condition where a company cannot meet its financial obligations, such as debt payments, due to low cash flow, high leverage, or operating losses.
  2. 3. The tendency for leverage to increase in response to shocks but never fully decrease, creating a one-directional upward drift in debt over time.
  3. 4. The ratio of debt to total assets (or equity), measuring how much a firm relies on borrowed money to finance its operations.
  4. 6. Theory stating that under perfect capital markets with no taxes, bankruptcy costs, or asymmetric information, firm value is invariant to financing decisions, establishing the theoretical benchmark against which all capital structure frictions are measured.
  5. 8. The reduction in taxable income achieved by deducting interest payments on debt, making debt financing cheaper than equity on an after-tax basis.
  6. 10. The ownership interest in a company, calculated as total assets minus total liabilities. It is the residual value belonging to shareholders after all debts are paid.