Financial theories Research Paper Example | Topics and Well Written Essays - 500 words

Financial theories - Research Paper ExampleThis theory applied to establish the expected rate of return on investments to pricing models of advanced(a) assets. Some of the attributes include the support of what information can be supportive for strategic investment (Shankman, 1999).Agency theory aimed at the ever-present relationship of agency, in which delegation of work takes place from one person to another, usually the principal and agent. The agency theory deals with the agency clashes, between principals and agents (Bamberg & Spremann, 1987). This theory has certain attributes which includes (1) ambiguity in routine conclusions, (2) unfavorable choice, and (3) nature of work performed (Bamberg & Spremann, 1987).Agency Costs of free-cash-flow occur between stockholders and managers conflict. These conflict arises where a firms with large cash flows than positive investment forecast. The attributes be (1) agency costs of free cash flows reduction benefit in debts and (2) substi tution of debt against dividends (Bowie & Freeman, 1992).Theory of Capital Structure provides the companies to organize their fiscal sources from internal to equity financing. Capital raising sources includes equity or debt, to equity is treated as less preferred means of raising capital. Firms usually, large firms drum their debts to support the dividends payment while small firms cut their debts to disburse dividend (Myers & Nicholas, 1984).Economic Value Added Theory (EVA) is a technique of financial performance to code the profit of a firm. Coca-Cola and General Motors are good examples of this theory. The attributes of this theory includes (1) maximization of the wealth of shareholders, and (2) investors expectation of companys growth in future get against the cost of capital (Hayne, 1998).Weighted average cost of Capital is the rate of return, sometimes called discount rate (Shankman, 1999). This applied in assessing weather the project is executable or not in the