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

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 ordebt) in total financing, i.e. optimize the financial structure of the enterprise andmaximising its value. On the other hand, they are trying to determine theweighting of each way of financing, that leads to maximising of the enterprisevalue and to minimise the cost of capital. So, the paper present the arbitrageused by an investor into an enterprise without debts and into an enterpriseindebt, using the model Modigliani and Miller, relating to the financing policyneutrality towards the average cost of capital and the value of the enterprise.

Keywords

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