Corporate Finance

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There is nothing like optimum capital structure for a firm.
The Optimal Capital structure is that Capital Structure at which the weighted Average cost of capital (Ko) is Minimum. It is that combination of Equity and Debt at which the total cost of capital is mini-mum.

Trade-off theory argues that there 's an optimal amount of debt of each firm. At this level of debt, firms can take the most advantage of debts. Debts can be tax shield so that they can save money for firms to reinvest in other projects so as to earn more profits. However, debts can be quite dangerous because highly leveraged firms may face bankruptcy and financial distress costs (no matter they 're direct or indirect) may increase the cost of debt of the company.
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They have shown that the financial leverage doesn 't matter and the cost of capital and the value of the firm are independent of the capital structure. Modigliani-Miller methods show that there is nothing which may be called as Optimal Capital Structure - to get high valuation of the firm.
Modigliani-Miller model is based on following assumptions:
1. The capital markets are perfect and complete information is available to all the investors free of cost. The implication of this assumption is that investors can borrow and lend funds at the same rate and can move quickly from one security to another,
2. Securities are infinitely divisible; Investors are rational and well informed about the risk-return of all the securities.
Modigliani-Miller model says that the total value of the firm is equal to the capitalized value of the operating earnings of the firm. The capitalization is to be made at a rate appropriate to the risk class of the firm.

Growth Plans, are involved in capital structural theories in which a certain amount will be allocated for the growth plans. A finance manager should draw a plan according for the dividend policy.
For Example: The firm has $10 million as equity capital and $6 million as debt capital and the firm made a profit (after tax) of $2 million, and the fund allocated to the growth plan was $1 million.
For suppose there are 10,000 shareholders in the company and as per
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