Long term sustainability of a company depends on various factors. Strategic capital structure would cater long term financial solution for the company. Capital structure of a company will be consisting of both debts and equity. The ratio between debt and equity will be decided based on number of strategic factors such as industry, PEST factors, legal and corporate governance of the company. When deciding the capital structure, organizations should understand both positives and negatives of the capital structure selected. For an example, interest component will be subjected to tax exemptions that will be an advantage for the bottom line of the company. One of the rationale used to define the capital structure is to compute cost of equity and cost of debt and finally WACC. Capital Asset Pricing Model is a competitive model that is used in the industry to compute cost of equity.
Capital Asset Pricing Model (CAPM) has transformed the way , investment managers, investors and academics view investment management and made a fundamental contribution to finance theory.
In this literature review, Capital Asset Pricing Model and its relevance in the organizational structure is critically analyzed using Pearson PLC, which is a British multinational publishing and educational company headquartered in London, UK. The analysis is supported by academic researches, corporate articles published and real-time organizational updates found through economic news alerts.
Critical Review on…