Different industries require different capital

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dividends or stock repurchase and can invest the cash in bonds or stocks of other firms.
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Different industries require different capital structures so that it can stay profitable and can compete with different firms within the industry. If a firm has too much debt or too little debt then it could be costing the stockholders money and hurting the firm’s chances of growing within the industry. Let’s take the car industry for example they have a lot of assets such as the plants that make the cars the materials and the cars them self’s can all be used as collateral for loans. During the finical crisis companies like Ford and GM were in a really tough position because the balance sheet had a lot of debt on them so when business slowed down they could not make payments on the debt and ultimately they could not get the loans they needed was facing bankruptcy but the federal government provided the loans needed to continue operating. Pharmaceutical companies and technology companies such as Oracle Systems use every little debt because their business runs in a cyclical of researching new products then developing the product for release so there is very little in the way of assets so they most keep debt at a minimum. If a firm like Oracle Systems finds that one of its products that they were developing does not and has to shut the project down then it would be millions in wasted research and if the firm had a lot of debt on its balance sheet then it could be facing bankruptcy. The reason why some investors would like dividends instead of reinvesting it into capitals gains is the steady income of money that you would receive. Retirees are a prime example of investors who would want a steady inflow of money they no long have a job and wish for a steady income. MM also argued that a high dividend policy was better for the company but in his assumption there was no taxes, but even with taxes some investors would prefer dividends be paid out because they are certain of what they would get but with reinvesting in capital gains it becomes less certain. The investors that what to reinvest in the capital gains have a tax break compared to a paid out dividend. Prior to 2003 dividends were taxed up 37 percent while the average capital gains tax was 20 percent this now has changed but reinvesting in capital gains still gives you a break in taxes. People who want to invest for the future look into reinvesting into capital gains and many companies has a dividend policy were it is reinvested automatically making easier for them. The stock prices are also affected by what the firm does with its retained earnings, if the firm reinvests it into the firm then an investor might pay a little more than some only looking for a dividend payout. When deciding on a dividend policy it is best to think about what the stockholders of the firm would want more and if the firm can provide that for them. The first decision is if the firm should payout dividends or keep money within the company. If the firm is able to get a higher
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