[Verse 1] Companies need money to grow and thrive Debt or equity keeps the dream alive Should we borrow cash or sell some shares? Capital structure shows who really cares Modigliani Miller had a plan Said firm value stays the same, they ran The numbers proving leverage doesn't matter When perfect markets don't let assumptions shatter [Chorus] Mix and match your debt and equity MM says it's all the same, you see But taxes change the game we play Interest shields save money every day Trade-off theory weighs the cost Pecking order shows what's gained and lost Capital structure tells the story Of how we fund our path to glory [Verse 2] But wait, there's more to this tale we tell When taxes enter, debt works well Interest payments reduce the bill Tax shields give your profits a thrill Financial distress brings a cost When debt gets high, value gets lost Bankruptcy whispers in the night Trade-off theory makes it right [Chorus] Mix and match your debt and equity MM says it's all the same, you see But taxes change the game we play Interest shields save money every day Trade-off theory weighs the cost Pecking order shows what's gained and lost Capital structure tells the story Of how we fund our path to glory [Bridge] Pecking order says we choose Internal funds we'll never lose Then debt comes next in line to use Equity's the last we'll choose Agency costs create a fight Debt holders want their money tight Equity holders take more risk Management caught between the mix [Verse 3] Target structure guides the way Optimal mix for every day Industry norms and business size Tax rates and growth before our eyes Debt covenants keep managers in check Financial ratios they must respect Practical factors rule the game Capital structure's not the same [Chorus] Mix and match your debt and equity MM says it's all the same, you see But taxes change the game we play Interest shields save money every day Trade-off theory weighs the cost Pecking order shows what's gained and lost Capital structure tells the story Of how we fund our path to glory [Outro] From perfect markets to the real world stage Capital structure sets the page For how companies choose to grow Now you've learned all you need to know
← Asset-Based Valuation Methods | DCF Valuation: Cash Flow Projections →