Operations Management Research Paper Example | Topics and Well Written Essays - 1000 words

Operations Management - Research Paper Example However, the bigger part of the research regarding Japanese management practices has emphasized on practices in Japan and the system in which these were diverged from practice of American firms. Moreover, the essential significance of HRM practices for the success of Japanese organizations has been discussed widely. Specifically, generating fortified employee cohesiveness, company commitment, and life time employment attended significant considerations. Furthermore, seniority-based pay systems along with extensive job rotation in different functions and slow promotion have been extensively discussed. Many facts revealed about Japanese HRM practices; however, very small number of them testified on their practicality, on the other hand a large part of our information is based on assumptions and past stories. There are eight rules which must be followed in practice of HRM. These eight rules are come into existence after practice and classification. These are fairness, frame of reference , scope, formality, time horizon, participation, individualism and explicitness. These eight aspects of HRM are being applied in all the countries of the world (Bird and Beechler, 1995). The model of lifetime employment has not been successful in all Japanese organizations. Definitely some practices were limited to only to established Japanese organizations. Long-term employment and seniority-based pay was only applicable to the limited numbers of workers in several organizations. Furthermore, their success was dependent on different dimensions. For instance, the requirement of organizational enhancement made possible the hiring of several young and comparatively cheap working forces and thus minimizes the expenses. Moreover, it also helped the companies to encourage the workers by developing fresh positions regarding promotions. Comparatively, the growth of the organizations was not probable without enhancing the efficiency of workers. Clearly, these skills were significant for the rising innovations that made able the firms of Japan to outclass their other counterparts of the world. However, these changes were not appropriate regarding knowledge-intensive and rapidly changing technologies. In the current economy, specific knowledge or fresh concepts, which are not related to the measurement of in-house training, are the initial motivators of the reasonable power of organizations. Thus, the aspects of long-term skill development were obstacles to a rapid and adjustable response to fresh chances. Furthermore Japanese companies have a larger scope, and their focal point is a broader set of targets and achievements. For instance, the bonuses of Japanese employees are attached to the wider performance of the firms as well as the employees have the advantage to take a large portion of bonuses to take home. This practice has also been observed in job rotation and training activities and this is the place where the emphasis is on the development of generalists not o n the specialists. Japanese firms are known for their search of excellence instead of equity. For instance, these firms reward the employees regularly. Moreover the pay is based on seniority basis and not on individual performance. This exhibits that these companies have been working to develop the society. It has been revealed that the

How Capital Structure Affects UK Cost of Capital

How Capital Structure Affects UK Cost of Capital Abstract Firms require a reasonable capital structure to meet the required target. To raise the finance, firms normally choose to review some different factors that are taken into account in considering. In this study, the author will examine the correlation between capital structure and the cost of the capital. As the cost will be a main factor for the firms to raise the finance. And different of capital structure will cause variable cost. This report will review the literature in capital structure and cost of finance. Along with the availability of source of finance, including the matching principle, a famous tools trade-off theory. As well as the argument follows, pecking order theory and agency cost theory. Drawing a conclusion based on the research survey data collection. Justify the relationship in how capital structure affects capital cost. Introduction The term capital structure refers to the mix of different types of funds which a company uses to finance its activities. Capital structure varies greatly from one company to another. For example, some companies are financed mainly by shareholders funds whereas others make much greater use of borrowings. Since the seminal publication of Modigliani and Miller (1958), corporate finance researchers have devoted considerable effort to investigating capital structure decisions (e.g. Myers, 1977 and 1984). Significant progress has been made in understanding the determinants of corporate capital structure with an increased emphasis on financial contracting theory (for example, Barclay and Smith, 1995; Mehran et al., 1999; and Graham et al., 1998 and, for an international view, Rajan and Zingales, 1995). This theory suggests that firm characteristics such as risk and investment opportunity set affect contracting costs. In turn, these costs impact on the choice between alternative forms of finance such as debt and equity, and between different classes of fixed-claim finance such as debt and leasing. The author will examine the relationship between the cost of capital and the structure of capital, and the effect of cost to raise finance in terms of making financial decision in the firms. Literature review 2.1 Theory of capital The origins of capital structure theory lie in the models of optimal capital structure that were developed in the wake of the famous Modigliani-Miller irrelevance theorem. These models later became to be known as the static trade-off theory (see e.g. Modigliani and Miller, 1958, 1963; Baxter, 1967; Gordon, 1971; Kraus and Litzenberger, 1973; Scott, 1976; Kim, 1978; Vinso, 1979). In this theory, the combination of leverage related costs (associated with e.g. bankruptcy and agency relations) and a tax advantage of debt produces an optimal capital structure at less than a 100% debt financing, as the tax advantage is traded off against the likelihood of incurring the costs. This theoretical result is now widely accepted in the profession. However, in seeking to model the wide diversity of capital structure practice, a number of additional factors have been proposed in the literature. 2.2 Factors that affect capital structure First, the use of debt finance can reduce agency costs between managers and shareholders by increasing the managers share of equity (Jensen and Meekling, 1976) and by reducing the free cash available for managers personal benefits (Jensen, 1986). Second, Myers and Majluf (1984) argue that, under asymmetric information, equity may be mispriced by the market. If firms finance new projects by issuing more equity, under pricing may cause les profit for existing shareholders in terms of the project NPV. Myers (1984) refers to this as pecking order theory of capital structure. The underinvestment can be reduced by financing the mispriced equity by the market. Internal funds involve no undervaluation and even debt that is not too risky will be preferred to equity. If external finance was required, firms tended first to issue the safest security, debt, and only issued equity as a last resort. Under this model, there is no well-define target mix of debt and equity finance. Each firms observed debt ratio reflects its cumulative requirements for external finance. Generally, profitable firms will borrow less because they can rely on internal resources and retain earnings. The preference for internal equity implies that firms will use less debt than suggested by the trade-off theory. Other factors that have been invoked to help explain the diversity of capital structures include: management behaviour (Williamson, 1988), firm-stakeholder interaction (Grinblatt and Titman, 1998), and corporate control issues (Harris and Raviv, 1988 and 1991). 2.3 How to finance The conventional discussion on a firms choice between long-term and short-term debt has generally focused on three aspects: matching debt maturity with asset life; extending the term-to-maturity of loans to stretch the firms debt capacity; and concentrating long-term debt issues in periods of relatively low interest rates. Recent development in the financial research literature has advanced several economics concepts such as transaction and agency costs, tax-timing option, and information asymmetry, to the debt maturity choice paradigm. Brick and Ravid (1985) show that taxes can also imply an optimal debt maturity structure. Depending on the term-structure of interest rates, long-term (short-term) is optimal, since it accelerates the tax benefit of debt given an increasing (decreasing) term structure. When firms cannot reveal the true quality of their cash flows, i.e. when information asymmetry exists, they can prevent or abate undervaluation by using a variety of signalling devices, such as debt (leverage), dividend payments or the maturity structure of debt. Thus, information asymmetry gives firms an incentive to signal their quality and credibility by taking on more debt and shortening their debt maturity. A higher leverage, especially more short-term debt, signals favourable inside information to the market because it offers the possibility to renegotiate terms in the future, when more information has become available. Long-term debt entails higher information costs than short-term debt, because the market expects a stronger deterioration of quality than insiders do. Firms with a low level of information asymmetry are therefore more likely to issue long-term debt (Flannery, 1986). In the study of international capital structures, Rajan and Zingales (1995) argue that it is important to test the robustness of US finds in different environments. They identify as potentially important the cross-country differences in tax and bankruptcy codes, in the market for corporate control and in the historical role played by banks and security markets. Methodology This survey focuses primarily on the determinants of the capital structure policy of firms but also includes some questions on topics that are closely related to the capital structure. For example, the questions address their approximate cost of equity to the managers, how they estimate their cost of equity (with CAPM or other methods), and whether the impact on the weighted average cost of capital is a consideration in their capital structure choice. The survey was developed after a careful review of the capital structure literature pertaining to the U.S. and European countries. For ease of comparability, the author tried to keep the format and design the survey similar to that of Graham and Harvey (2001), but modified or simplified some questions that are likely to be relevant in the UK context. For example, literature suggests that there are strong differences in corporate objectives between American and UK financial systems since the former system focuses on maximizing shareholder wealth while the later emphasizes the welfare of all stakeholder including employees, creditors and even he government. To examine this difference, the author ask the CFOs about the extent to which different stakeholders influence their firms financial decisions, the author also ask the firms the percentage of their free float share and whether they have preference or common share. 3.1 Sampling The initial samples for mailing the survey consist of a total of 57 firms from UK. The choice of initial sample was based on selecting firms that are representative of the UK firms, are widely traded, are comparable across country, and are public limited with available information. These criteria are important to justify the firms specific difference. From this sample, 9 firms were deleted because of non-availability of addresses and another 17 firms were deleted because they declined to participate in the survey, leaving a final sample of 31 firms. The survey was anonymous as this was an important criterion to obtain honest responses. In the mailing a letter was included that was addressed to the CFO or CEO explaining the objective of the study and promising to send a copy of the findings to those who wished to receive. A total of 12 responses were received by mail, which represents a response rate about 38 percent. 3.3 Summary of findings The respondent firms represent a wide variety of industries with a larger concentration in manufacturing; mining; energy and transportation sector; high technology; and financial sectors. About three forth of firms have a target debt to equity ratios, and about half of these firms maintain a target debt to equity ratios of one. Further, many respondents have a large percentage of their total debt in short term. About 80 percent of respondents report that they calculate their cost of equity, and over 77% of them employ the Capital Asset Pricing Model (CAPM) to calculate this cost. The estimated cost of equity reported by respondents ranges between 9%-15% only few firms report cost of capital greater than 15% The correlations among the demography variables of this survey are largely as predicted in the literature. These correlations will be discussed in detail in the next section. Analysis Three sets of factors in managers opinion that are likely to influence capital structure of firms are selected based on a review of literature. The first set is based on the implications of different capital structure theories such as the trade-off theory, the pecking order theory, and the agency cost theory. Generally the managers will make the financial decisions based on theories and through these decisions to affect their cost of capital. The second set relates to the managers timing of debt or equity issues since literature suggests that managers are concerned about financial flexibility. With evidence support in the findings, most of managers within all industries consider the financial flexibility as the most important issue when raise finance. Finance by short term may give the company advantage in changing their status to meet the changing world environment and provide less risks in investments. Finally, the last set of factors is based on common beliefs among managers about the impact of capital structure changes on financial statements such as the potential impact of equity issue on earnings. This factor shows the important of experience in managers mind and how it will be impact on the decisions. In summary, to analyse a companys capital structure, we assume that the company is only financed by two ways, either by shareholders equity or borrowings. It is just to consider how cost of capital affect the different proportion of debt in capital structure. Figure 8: Two advantages and two disadvantages of borrowing Advantages Disadvantages 1. Cheap direct cost because debt is less risky to the investor 1. Financial leverage causes shareholders to increase their cost of capital 2. Cheap direct cost because interest is a tax deductible expense. 2. Bankruptcy risks if borrowings are too high. The main advantage of borrowing is that the debt has a cheaper direct cost than equity. Debt is less risky to the investor than equity (low risk result a low required return) Interest payments are tax deductable whereas dividends are not. However, borrowing has two distinct disadvantages. Firstly it causes shareholders to suffer increased volatility of earnings. This is known as financial leverage. The increased volatility to shareholders returns resulting from financial leverage causes shareholders to demand a higher rate of return in compensation. The second disadvantage of borrowing is that if the company borrows too much, it increases its bankruptcy risks. At reasonable levels of gearing this affect will be imperceptible, but it becomes significant for highly geared companies and results in a range of risks and costs which have the effect of increasing the companys cost of capital. Limitation and Ethical issue The research focus on the UK market and respondents are from different areas of industry. The limitation has been carried out. First will be the time of the research. As a three months research, the data was not examined as correct enough to support the authors point. The data collection should be carrying continually in a long period of time and often reviewed at some certain time. Second, the way of collecting these data is limited by mailing. The survey may not represent the whole market as the limited number of respondents. A research should conduct all the possible methods including quantitative and qualitative. Finally, as this is not a professional research, lots of objectives in the research declined to give feedback in judging their financial structure in the case some of this could be their classified information. The ethical issue has been raised in this research; this will be honesty in the feedbacks from the respondents. As this survey is anonymous research, the managers may not give the right information in case of rising threats in competition. The importance of financial structure in firms causes the mangers to think before they actually answer the questions. The privacy issue in their mind raised that they may not want to share all the information regarding to the financial statement. Conclusion The purpose of this article is to supplement the existing literature with an analysis of the factors determining the financial structure affecting the cost of capital. The analyses give rise to the following conclusions. The study presents a dynamic model to address the possibility of adjustment costs incurred in reaching an optimal capital structure. And examine the literature in the factors in capital structure in affecting the cost of financing a firm through the facts in reality. The conclusion can be drawn as the cost of capital is a key factor that firms taken into account when raise finance along with the financial flexibility. On the other hand, the capital structure of a firm will affect the firms cost in both short term and long term. The firms raise the finance to meet the required target, there is no such a way to limit firms financial structure. They may want to choose a short term loan to meet flexibility of cash flow, in the contrast; the long term finance may require more information and satisfaction of the firms. The cost of capital depends on how firms finance their capital structure. Reference and bibliography Barclay, M.J. and C.W. Smith (1995), The Priority Structure of Corporate Liabilities, Journal of Finance, Vol. 50, No. 3 (July) Baxter, N. D. (1967) Leverage, the Risk of Ruin and the Cost of Capital, Journal of Finance, 22 Brick, I. and Ravid, A. (1985) On the relevance of debt maturity structure, Journal of Finance, 40 Flannery, M. (1986) Asymmetric information and risky debt maturity choice, Journal of Finance, 41 Gordon, M. (1971) Towards a theory of financial distress, Journal of Finance, 26 Graham, J.R., M.L. Lemmon and J.S. Schallheim (1998), Debt, Leases, Taxes and The Endogeneity of Corporate Tax Status, Journal of Finance, Vol. 53, No. 1 (February) Graham, J.R. and C.R. Harvey (2001), The Theory and Practice of Corporate Finance: Evidence from the Field, Journal of Financial Economics, Vol. 60, Nos. 2/3 (May) Grinblatt, M. and S. Titman (1998), Financial Markets and Corporate Strategy (Irwin/McGraw- Hill, USA) Harris, M. and A. Raviv (1988), Corporate Control Contests and Capital Structure, Journal of Financial Economics, Vol. 20 Harris, M. and A. Raviv (1991), The Theory of Capital Structure, Journal of Finance, Vol. 46, No. 1 (March) Jensen, M.C. (1986), Agency Costs of Free Cash Flow, Corporate Finance and Takeovers, American Economic Review, Vol. 76, No. 2, Jensen, M.C. and W. Meckling (1976), Theory of the Firm: Managerial Behaviour, Agency Costs, and Capital Structure, Journal of Financial Economics, Vol. 3, No. 4 Kim, E. (1978) A mean-variance theory of optimal capital structure and corporate debt capacity, Journal of Finance, 23 Kraus, A. and Litzenberger, R. (1973) State preference model of optimal leverage, Journal of Finance, 28 Mehran, H., R.A. Taggart and D. Yermack (1999), CEO Ownership, Leasing and Debt Financing, Financial Management, Vol. 28, No. 2 Modigliani, F.F. and M.H. Miller (1958), The Cost of Capital, Corporation Finance, and the Theory of Investment, American Economic Review, Vol. 48, No. 3 (June) Myers, S.C. (1977), Determinants of Corporate Borrowing, Journal of Financial Economics, Vol. 5, No. 2 (November) Myers, S.C. (1984), The Capital Structure Puzzle, Journal of Finance, Vol. 39, No. 3 (July) Myers, S. and Majluf, N. (1984) Corporate financing and investment decisions when firms have information that investors do not have, Journal of Financial Economics, 13, Rajan, R.G. and L. Zingales (1995), What Do We Know About Capital Structure Choice? Some Evidence from International Data, Journal of Finance, Vol. 50, No. 5 Scott, J. (1976) A theory of optimal capital structure, Bell Journal of Economics, 7 Vinso, J. (1979) A determination of the risk of ruin, Journal of Financial and Quantitative Analysis, 14 Williamson, O.E. (1988), Corporate Finance and Corporate Governance, Journal of Finance, Vol. 43, No. 3 (July) Advantage and disadvantage of borrowing, available on website www.accaglobal.com, access on 28.04.2010 How Capital Structure Affects UK Cost of Capital How Capital Structure Affects UK Cost of Capital Abstract Firms require a reasonable capital structure to meet the required target. To raise the finance, firms normally choose to review some different factors that are taken into account in considering. In this study, the author will examine the correlation between capital structure and the cost of the capital. As the cost will be a main factor for the firms to raise the finance. And different of capital structure will cause variable cost. This report will review the literature in capital structure and cost of finance. Along with the availability of source of finance, including the matching principle, a famous tools trade-off theory. As well as the argument follows, pecking order theory and agency cost theory. Drawing a conclusion based on the research survey data collection. Justify the relationship in how capital structure affects capital cost. Introduction The term capital structure refers to the mix of different types of funds which a company uses to finance its activities. Capital structure varies greatly from one company to another. For example, some companies are financed mainly by shareholders funds whereas others make much greater use of borrowings. Since the seminal publication of Modigliani and Miller (1958), corporate finance researchers have devoted considerable effort to investigating capital structure decisions (e.g. Myers, 1977 and 1984). Significant progress has been made in understanding the determinants of corporate capital structure with an increased emphasis on financial contracting theory (for example, Barclay and Smith, 1995; Mehran et al., 1999; and Graham et al., 1998 and, for an international view, Rajan and Zingales, 1995). This theory suggests that firm characteristics such as risk and investment opportunity set affect contracting costs. In turn, these costs impact on the choice between alternative forms of finance such as debt and equity, and between different classes of fixed-claim finance such as debt and leasing. The author will examine the relationship between the cost of capital and the structure of capital, and the effect of cost to raise finance in terms of making financial decision in the firms. Literature review 2.1 Theory of capital The origins of capital structure theory lie in the models of optimal capital structure that were developed in the wake of the famous Modigliani-Miller irrelevance theorem. These models later became to be known as the static trade-off theory (see e.g. Modigliani and Miller, 1958, 1963; Baxter, 1967; Gordon, 1971; Kraus and Litzenberger, 1973; Scott, 1976; Kim, 1978; Vinso, 1979). In this theory, the combination of leverage related costs (associated with e.g. bankruptcy and agency relations) and a tax advantage of debt produces an optimal capital structure at less than a 100% debt financing, as the tax advantage is traded off against the likelihood of incurring the costs. This theoretical result is now widely accepted in the profession. However, in seeking to model the wide diversity of capital structure practice, a number of additional factors have been proposed in the literature. 2.2 Factors that affect capital structure First, the use of debt finance can reduce agency costs between managers and shareholders by increasing the managers share of equity (Jensen and Meekling, 1976) and by reducing the free cash available for managers personal benefits (Jensen, 1986). Second, Myers and Majluf (1984) argue that, under asymmetric information, equity may be mispriced by the market. If firms finance new projects by issuing more equity, under pricing may cause les profit for existing shareholders in terms of the project NPV. Myers (1984) refers to this as pecking order theory of capital structure. The underinvestment can be reduced by financing the mispriced equity by the market. Internal funds involve no undervaluation and even debt that is not too risky will be preferred to equity. If external finance was required, firms tended first to issue the safest security, debt, and only issued equity as a last resort. Under this model, there is no well-define target mix of debt and equity finance. Each firms observed debt ratio reflects its cumulative requirements for external finance. Generally, profitable firms will borrow less because they can rely on internal resources and retain earnings. The preference for internal equity implies that firms will use less debt than suggested by the trade-off theory. Other factors that have been invoked to help explain the diversity of capital structures include: management behaviour (Williamson, 1988), firm-stakeholder interaction (Grinblatt and Titman, 1998), and corporate control issues (Harris and Raviv, 1988 and 1991). 2.3 How to finance The conventional discussion on a firms choice between long-term and short-term debt has generally focused on three aspects: matching debt maturity with asset life; extending the term-to-maturity of loans to stretch the firms debt capacity; and concentrating long-term debt issues in periods of relatively low interest rates. Recent development in the financial research literature has advanced several economics concepts such as transaction and agency costs, tax-timing option, and information asymmetry, to the debt maturity choice paradigm. Brick and Ravid (1985) show that taxes can also imply an optimal debt maturity structure. Depending on the term-structure of interest rates, long-term (short-term) is optimal, since it accelerates the tax benefit of debt given an increasing (decreasing) term structure. When firms cannot reveal the true quality of their cash flows, i.e. when information asymmetry exists, they can prevent or abate undervaluation by using a variety of signalling devices, such as debt (leverage), dividend payments or the maturity structure of debt. Thus, information asymmetry gives firms an incentive to signal their quality and credibility by taking on more debt and shortening their debt maturity. A higher leverage, especially more short-term debt, signals favourable inside information to the market because it offers the possibility to renegotiate terms in the future, when more information has become available. Long-term debt entails higher information costs than short-term debt, because the market expects a stronger deterioration of quality than insiders do. Firms with a low level of information asymmetry are therefore more likely to issue long-term debt (Flannery, 1986). In the study of international capital structures, Rajan and Zingales (1995) argue that it is important to test the robustness of US finds in different environments. They identify as potentially important the cross-country differences in tax and bankruptcy codes, in the market for corporate control and in the historical role played by banks and security markets. Methodology This survey focuses primarily on the determinants of the capital structure policy of firms but also includes some questions on topics that are closely related to the capital structure. For example, the questions address their approximate cost of equity to the managers, how they estimate their cost of equity (with CAPM or other methods), and whether the impact on the weighted average cost of capital is a consideration in their capital structure choice. The survey was developed after a careful review of the capital structure literature pertaining to the U.S. and European countries. For ease of comparability, the author tried to keep the format and design the survey similar to that of Graham and Harvey (2001), but modified or simplified some questions that are likely to be relevant in the UK context. For example, literature suggests that there are strong differences in corporate objectives between American and UK financial systems since the former system focuses on maximizing shareholder wealth while the later emphasizes the welfare of all stakeholder including employees, creditors and even he government. To examine this difference, the author ask the CFOs about the extent to which different stakeholders influence their firms financial decisions, the author also ask the firms the percentage of their free float share and whether they have preference or common share. 3.1 Sampling The initial samples for mailing the survey consist of a total of 57 firms from UK. The choice of initial sample was based on selecting firms that are representative of the UK firms, are widely traded, are comparable across country, and are public limited with available information. These criteria are important to justify the firms specific difference. From this sample, 9 firms were deleted because of non-availability of addresses and another 17 firms were deleted because they declined to participate in the survey, leaving a final sample of 31 firms. The survey was anonymous as this was an important criterion to obtain honest responses. In the mailing a letter was included that was addressed to the CFO or CEO explaining the objective of the study and promising to send a copy of the findings to those who wished to receive. A total of 12 responses were received by mail, which represents a response rate about 38 percent. 3.3 Summary of findings The respondent firms represent a wide variety of industries with a larger concentration in manufacturing; mining; energy and transportation sector; high technology; and financial sectors. About three forth of firms have a target debt to equity ratios, and about half of these firms maintain a target debt to equity ratios of one. Further, many respondents have a large percentage of their total debt in short term. About 80 percent of respondents report that they calculate their cost of equity, and over 77% of them employ the Capital Asset Pricing Model (CAPM) to calculate this cost. The estimated cost of equity reported by respondents ranges between 9%-15% only few firms report cost of capital greater than 15% The correlations among the demography variables of this survey are largely as predicted in the literature. These correlations will be discussed in detail in the next section. Analysis Three sets of factors in managers opinion that are likely to influence capital structure of firms are selected based on a review of literature. The first set is based on the implications of different capital structure theories such as the trade-off theory, the pecking order theory, and the agency cost theory. Generally the managers will make the financial decisions based on theories and through these decisions to affect their cost of capital. The second set relates to the managers timing of debt or equity issues since literature suggests that managers are concerned about financial flexibility. With evidence support in the findings, most of managers within all industries consider the financial flexibility as the most important issue when raise finance. Finance by short term may give the company advantage in changing their status to meet the changing world environment and provide less risks in investments. Finally, the last set of factors is based on common beliefs among managers about the impact of capital structure changes on financial statements such as the potential impact of equity issue on earnings. This factor shows the important of experience in managers mind and how it will be impact on the decisions. In summary, to analyse a companys capital structure, we assume that the company is only financed by two ways, either by shareholders equity or borrowings. It is just to consider how cost of capital affect the different proportion of debt in capital structure. Figure 8: Two advantages and two disadvantages of borrowing Advantages Disadvantages 1. Cheap direct cost because debt is less risky to the investor 1. Financial leverage causes shareholders to increase their cost of capital 2. Cheap direct cost because interest is a tax deductible expense. 2. Bankruptcy risks if borrowings are too high. The main advantage of borrowing is that the debt has a cheaper direct cost than equity. Debt is less risky to the investor than equity (low risk result a low required return) Interest payments are tax deductable whereas dividends are not. However, borrowing has two distinct disadvantages. Firstly it causes shareholders to suffer increased volatility of earnings. This is known as financial leverage. The increased volatility to shareholders returns resulting from financial leverage causes shareholders to demand a higher rate of return in compensation. The second disadvantage of borrowing is that if the company borrows too much, it increases its bankruptcy risks. At reasonable levels of gearing this affect will be imperceptible, but it becomes significant for highly geared companies and results in a range of risks and costs which have the effect of increasing the companys cost of capital. Limitation and Ethical issue The research focus on the UK market and respondents are from different areas of industry. The limitation has been carried out. First will be the time of the research. As a three months research, the data was not examined as correct enough to support the authors point. The data collection should be carrying continually in a long period of time and often reviewed at some certain time. Second, the way of collecting these data is limited by mailing. The survey may not represent the whole market as the limited number of respondents. A research should conduct all the possible methods including quantitative and qualitative. Finally, as this is not a professional research, lots of objectives in the research declined to give feedback in judging their financial structure in the case some of this could be their classified information. The ethical issue has been raised in this research; this will be honesty in the feedbacks from the respondents. As this survey is anonymous research, the managers may not give the right information in case of rising threats in competition. The importance of financial structure in firms causes the mangers to think before they actually answer the questions. The privacy issue in their mind raised that they may not want to share all the information regarding to the financial statement. Conclusion The purpose of this article is to supplement the existing literature with an analysis of the factors determining the financial structure affecting the cost of capital. The analyses give rise to the following conclusions. The study presents a dynamic model to address the possibility of adjustment costs incurred in reaching an optimal capital structure. And examine the literature in the factors in capital structure in affecting the cost of financing a firm through the facts in reality. The conclusion can be drawn as the cost of capital is a key factor that firms taken into account when raise finance along with the financial flexibility. On the other hand, the capital structure of a firm will affect the firms cost in both short term and long term. The firms raise the finance to meet the required target, there is no such a way to limit firms financial structure. They may want to choose a short term loan to meet flexibility of cash flow, in the contrast; the long term finance may require more information and satisfaction of the firms. The cost of capital depends on how firms finance their capital structure. Reference and bibliography Barclay, M.J. and C.W. Smith (1995), The Priority Structure of Corporate Liabilities, Journal of Finance, Vol. 50, No. 3 (July) Baxter, N. D. (1967) Leverage, the Risk of Ruin and the Cost of Capital, Journal of Finance, 22 Brick, I. and Ravid, A. (1985) On the relevance of debt maturity structure, Journal of Finance, 40 Flannery, M. (1986) Asymmetric information and risky debt maturity choice, Journal of Finance, 41 Gordon, M. (1971) Towards a theory of financial distress, Journal of Finance, 26 Graham, J.R., M.L. Lemmon and J.S. Schallheim (1998), Debt, Leases, Taxes and The Endogeneity of Corporate Tax Status, Journal of Finance, Vol. 53, No. 1 (February) Graham, J.R. and C.R. Harvey (2001), The Theory and Practice of Corporate Finance: Evidence from the Field, Journal of Financial Economics, Vol. 60, Nos. 2/3 (May) Grinblatt, M. and S. Titman (1998), Financial Markets and Corporate Strategy (Irwin/McGraw- Hill, USA) Harris, M. and A. Raviv (1988), Corporate Control Contests and Capital Structure, Journal of Financial Economics, Vol. 20 Harris, M. and A. Raviv (1991), The Theory of Capital Structure, Journal of Finance, Vol. 46, No. 1 (March) Jensen, M.C. (1986), Agency Costs of Free Cash Flow, Corporate Finance and Takeovers, American Economic Review, Vol. 76, No. 2, Jensen, M.C. and W. Meckling (1976), Theory of the Firm: Managerial Behaviour, Agency Costs, and Capital Structure, Journal of Financial Economics, Vol. 3, No. 4 Kim, E. (1978) A mean-variance theory of optimal capital structure and corporate debt capacity, Journal of Finance, 23 Kraus, A. and Litzenberger, R. (1973) State preference model of optimal leverage, Journal of Finance, 28 Mehran, H., R.A. Taggart and D. Yermack (1999), CEO Ownership, Leasing and Debt Financing, Financial Management, Vol. 28, No. 2 Modigliani, F.F. and M.H. Miller (1958), The Cost of Capital, Corporation Finance, and the Theory of Investment, American Economic Review, Vol. 48, No. 3 (June) Myers, S.C. (1977), Determinants of Corporate Borrowing, Journal of Financial Economics, Vol. 5, No. 2 (November) Myers, S.C. (1984), The Capital Structure Puzzle, Journal of Finance, Vol. 39, No. 3 (July) Myers, S. and Majluf, N. (1984) Corporate financing and investment decisions when firms have information that investors do not have, Journal of Financial Economics, 13, Rajan, R.G. and L. Zingales (1995), What Do We Know About Capital Structure Choice? Some Evidence from International Data, Journal of Finance, Vol. 50, No. 5 Scott, J. (1976) A theory of optimal capital structure, Bell Journal of Economics, 7 Vinso, J. (1979) A determination of the risk of ruin, Journal of Financial and Quantitative Analysis, 14 Williamson, O.E. (1988), Corporate Finance and Corporate Governance, Journal of Finance, Vol. 43, No. 3 (July) Advantage and disadvantage of borrowing, available on website www.accaglobal.com, access on 28.04.2010

Euthanasia Essay: Moral Considerations in the Debate :: Euthanasia Physician Assisted Suicide

Moral Considerations in the Euthanasia Debate      Ã‚   The Judeo-Christian moral tradition celebrates life as the gift of a loving God, and respects the life of each human being because each is made in the image and likeness of God. As Christians we also believe we are redeemed by Christ and called to share eternal life with Him. Our Church views life as a sacred trust, a gift over which we are given stewardship and not absolute dominion. The Church thus opposes all direct attacks on innocent life. As conscientious stewards we have a duty to preserve life, while recognizing certain limits to that duty:    Because human life is the foundation for all other human goods, it has a special value and significance. Life is "the first right of the human person" and "the condition of all the others."[1]    All crimes against life, including "euthanasia or willful suicide," must be opposed.[2] Euthanasia is "an action or an omission which of itself or by intention causes death, in order that all suffering may in this way be eliminated." Its terms of reference are to be found "in the intention of the will and in the methods used."[3] Thus defined, euthanasia is an attack on life which no one has a right to make or request, and which no government or other human authority can legitimately recommend or permit. Although individual guilt may be reduced or absent because of suffering or emotional factors that cloud the conscience, this does not change the objective wrongfulness of the act. It should also be recognized that an apparent plea for death may really be a plea for help and love.    Suffering is a fact of human life, and has special significance for the Christian as an opportunity to share in Christ's redemptive suffering. Nevertheless there is nothing wrong in trying to relieve someone's suffering; in fact it is a positive good to do so, as long as one does not intentionally cause death or interfere with other moral and religious duties.[4]    Everyone has the duty to care for his or her own life and health and to seek necessary medical care from others, but this does not mean that all possible remedies must be used in all circumstances. One is not obliged to use either "extraordinary" means or "disproportionate" means of preserving life -- that is, means which are understood as offering no reasonable hope of benefit or as involving excessive burdens.

Excessive Talking Essay

I am being disciplined for talking in class without the teacher’s permission. I must realize that when too many people are talking at once, it is hard to hear and understand anyone at all. That is one reason why my teacher wants only one person to talk at a time. A second reason is that most people find it difficult to think about what they are trying to say if someone else is talking at the same time they are. A third reason I should not talk in class without first being given permission is that most people find it hard to concentrate on their schoolwork when others around them are talking. There are times to listen and think and work quietly. It is at these times that I should not talk without being given permission first. Additionally, by paying attention to, and doing, my schoolwork instead of talking without permission, I will probably get better grades. When I talk in class, I bother everyone around me. I also bother my teacher. By talking in class I keep myself and others from learning. I also show others that I have not learned how to follow directions or how to control myself. Some students might find it hard to be friends with me if I cannot follow directions or control myself, because they could get in trouble too, by talking back to me during class. In fact, if they get caught and I don’t, they will probably be angry at me because I started talking first! I should work very hard to not talk during class unless I get permission first. A step to learning how to stop talking is to know why I do it, and what problems it causes others. Then I need to make a plan for improving my behavior, like making a promise to the teacher (and myself) at the beginning of each class. Or, I could make a card to put on my desk during class that reads something like: â€Å"Get permission to talk.†

Labeling: Disability and Special Education Essay

What are Exceptional children and what place do they have in our schools? Exceptional children are children who are either exceptionally gifted or children with exceptional learning disabilities. These are children whose performances are way above the average child or way below the average child. When they perform way above the average child, they are called gifted. When they perform way below the average, we say they are children with learning disabilities. Like any other child, these children with exceptionalities are also a part of our society. Therefore it is important that they get the same opportunities as other children. Sometimes these children are clled Special and are placed in a special education program. However there are some children who never attended school. Journal entry II Reflection Journal Entry I What is Labeling? A tag used to identify children with learning disabilities. Types of Labeling – Slow learners, lazy, unmotivated, rude, dumb and disgusting. Advantages of Labeling 1. Had it not been for labeling there would not have been any funds for educational programs for children with learning disabilities. 2. Labeling allows professionals to meet so that they can work together for a common goal to help facilitate children with learning disabilities. 3. Labeling has led to the development of specialized teaching methods, assignment approaches and behavioural interventions that are useful for all teachers including teachers who teach children with learning disabilities (Hallahah and Kauffman, 1982) 4. Labeling may make the majority without disabilities more tolerant of the minority with disabilities. People may tolerate the actions of children identified as having intellectual disabilities than their peers without intellectual disabilities who would be criticized. 5. Labeling the disability spotlights the problems imposed for the public. Labeling can spark social concern and aid advocacy effects. 6. The human mind requires â€Å"mental hooks† to think about problems. If present categorical labels were abolished, a new set of descriptors would evolve to take their place. There is ample evidence of this in the evolution of the term â€Å"mildly disable†. Disadvantages of Labeling. 1. Although all children have some behavioural problems, labels can exaggerate a student’s actions in the eyes of a teacher. A tacher may overact to behaviour of a labeled child that would be tolerated in another. 2. Labels send a clear message. The learning problem is with the student. Labels tend to obscure the essence of teaching and leaning as a two-way street. Some children that are placed in a mild disability category are said to have nothing wrong with them, however they are the recipients of ineffective schooling 3. Labeling shape teacher expectation. Imagine what your reaction would be if you as a teacher were told that you had a mildly retarded child in your class. Studies on teacher expectations have demonstrated that what teachers believe about student capability is directly related to students achievement. 4. Labels perpetuate the notion that students with mild disabilities are qualitatively different from other children. That is not true. Students with disabilities go through the same developmental stages as their peers, although sometimes at a slower pace. 5. Students can not receive special education services until they are labeled. In many instances, the intervention comes too late. The need to students before help arrives undermines a preventive approach to mild learning problems. 6. Teachers may confuse the student with the label. Labels reflect categories of disabilities. Categories are abstract, not real, concepts that the general enough to incorporate many different individuals. Each child is a unique human being. When a student is placed in a category, a teacher who knows some of the characteristics of a category may ascribe all known characteristics to each labeled child. This is stereotyping and it harms children when a teacher rationalize low achievement by citing characteristics of the label. Example: We do not expect John to remember all his spellings vecause he is intellectually disabled. 7. Diagnostic labels are unreliable. Educational evaluation is filled with quirks. /the governments use different description criteria for the same categories; many evaluation instruments have questionable validity and reliability; specific labels go through trends. 8. Labels often put the blame (and the guilt) for a student’s learning problem squarely on the parents’ shoulders. In many cases, this is unjustified because students may be mislabeled or teachers many not fully understand the many different cases for learning disability. More disadvantages Labeling a child with Learning Disabilities may: 1. Cause stigmatization from teacher, peers and parents 2. May lower expectations placed on them 3. Have teachers treat them differently 4. Students may make fun of them 5. Students may have difficulty of being alienated or bullied by the general school body 6. They are unable to participate in school functions or attend different school from their siblings, which can lead to isolation Conclusion. The advantages of labeling were more obvious in the formative years of special education (mid 1940s to early 1970s) then they are now without the category learning disability, advocates would not have been able to promote educational programs for these children. Once a child is categorized with intellectual disability, emotional disturbance, or learning disabilities, this information would be filed an every teacher who comes along will be informed. This reason alone stigmatizes a child. This practice should never be done if it can be helped. Journal Entry III Inclusion: Argument For and Against All m en are created equal. Therefore it is the rights of one and all to be included in a family, school, society or the world for that matter. Whether on is black or white, woman or man, disable or able it is the right of every human being to be a part of the inclusion process. Many persons whose abilities are denied or ignored feels that society has not respected their rights to participate in their fullest capabilities as their peers. So what is Inclusion – Some say it is about all of us, living full lives, our abilities and not a disability issue, opening doors that were once locked for all, equal opportunities and education for all. It is recognizing our interdependence and that we are one, even ehen we are not the same. For Inclusion Many people are for inclusion:- 1. Because of the ever changing world. Because the world is changing, stereotyping is being exposed, allowing moral values to change. 2. Every child has a right to an appropriate and efficient education in his/her local mainstream school. 3. It is unlawful for education providers to discriminate between pupils on grounds of race, sex, disability, sexual orientation, gender reassignment, religion, etc. 4. Changes in world and government policies means equality for all, including disabled people. Respect and equal commitment are becoming more important. 5. Human rights for every individual introduces diversity as rich learning resource. 6. Inclusion rarely cost less than segregated classes when the concept is implemented responsibly (Sklaroff 1994 p7) 7. Gifted children can some times be grouped by â€Å"heterogeneous grouping† however it is said that gifted children work best with gifted children. 8. Teachers who have only low=ability students often times have lower expectation of their students. Journal Entry IV 1. Disabled children are not getting the attention that is needed in the mainstream. 2. Classroom teachers do not always have the necessary resources, training or support system in place to teach children with disabilities. 3. The disabled children are not getting appropriate specialized attention and care. Teachers have neither the time, nor expertise to meet their needs. 4. The regular students are disrupted instantly. 5. Students with disabilities can not cope with the high standard placed on students to improve the academic achievement of students. Luberman (1992). 6. By expending the range of ability levels, teachers are required to direct inordinate attention to only a few students, decreasing the amount of time and energy with the rest of the class. Tonnille (1994) 7. By mixing disabled children with regular students, they would get lost in the crowd and programs would be watered down. 8. Students are subject to negative labeling. Finally it is my belief that children with learning disabilities need their own space. They do not progress academically without individual attention to meet their won specific educational needs. In addition, these students need specialized teachers, teaching them in a resourced room setting to cater to their special needs. However, there are some children with mild disabilities. These children can be a part of inclusion within regular classroom setting with limited disabilities. These children have a better opportunity of progressing, once teachers are willing and able to teach them. Also they get to improve by imitating and working along side average children. They also learn from these children.