Investigate the Capital Structure of Facebook Based on Financial Model

Capital structure decisions are important to the company. The capital structure is a combination of debt and equity used by a company to finance its overall operation and growth. Nowadays a company with a simple capital structure can hardly survive with the development of the market and society. As a result, it is quite significant to deeply study the structures and thus give more support to the company’s development. However, the questions we solved rarely consider the impacts of frictions and taxes. Based on the Modigliani and Miller theory(MM theory)and the concept of the weighted average cost of capital (WACC), we demonstrate the conclusion that the proportion of debt in a company’s capital structure makes no difference to the value of the company. This paper aims to help companies make better decisions and investments by estimating risks, returns, and the impacts from different capital structures on companies as well as the calculations of cashflows.