Capital Structure
Soliciting funding for a company investment is normally an uphill task for the company. The ideal company must convince the investors that it can repay the money. For this reason, there is a necessity to determine the company's capital structure. Capital structure guides the company agitation on funding. In fact, through the capital structure, the company achieves debt capital, equity capital, and other hybrid securities like vendor financing. The commencing report will examine Microsoft Capital structure. The report will prove that Microsoft can achieve a coherent financial liberation if it pursues capital-funding mechanisms that are investment conscious.
Microsoft Capital Structure
Microsoft capital structure comprises of residual distribution model in practice. Berg Aspelund and Sorheim (2008, pp. 33) joins this analysis by arguing the residual distribution facilitates determination of estimates returns and investment. Microsoft assesses its opportunities assessed on the average for the next five years. In addition, the capital structure is forecasted on information on the target capital structure in a residual model. The capital structure set out target payout ratio based on projected data. On the other hand, Microsoft plans to issue a 55 billion-share buyback to supplement on the debt problem. Currently, Microsoft share is trading at 40.10 dollars. In order to give assurance to investors, Microsoft issues preferred dividend preference and cumulative dividend preferences. Preferred divided are common stock set by the corporation board of directors and dividends on preferred stock. The percentage par value, index presents a dividend rate of $100, and this presents an annual dividend rate of $8 (100 par * 8%)
Changes to Capital Structure
Microsoft's approach requests investors to contribute positively to the debt burden. Trends of capital structure have been based on the dividend policy, monetary transmission mechanism, stock volatility, and stock market evaluation. The way a company performs on the market remains an integral concern of both the executive and potential investors. It should be noted after-tax distribution possesses a 100% debt than other financial arrangements. For this reason, organizing a stockholder buyback-debt mechanism minimizes additional risk to the capital contributors. The...
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