ABSTRACT
The term capital structure refers to the mixture of debt and equity that fund a company’s assets. This chapter explores the different methods of raising capital and why an airline might use a variety of funding sources based upon the relative costs of capital. It analyzes the different capital contributions, namely common stock, preferred stock, debt, and retained earnings, and their respective costs. Capital projects are funded through three different means: the internal reinvestment of profits, issuance of new equity, or the issuance of debt. The value of a company stock can be presented by its market value, book value, or par value. Stocks with non-constant dividend growth are much more consistent with realistic expectations, but the differing growth rate over time mandates a more manual approach to stock valuation. Preferred stock is a special form of equity ownership that has a fixed periodic dividend that must be paid before dividends are distributed to common stockholders.
