FINC 5000 LESSON NOTES – WEEK 7 CHAPTER 15 Capital Structure Introduction: Capital Structure Theory - Capital Structure refers to the proportion of debt and equity being used to finance a firm’s assets: Assets = Debt + Equity Capital Structure - In this lesson we will examine the notion that capital structure affects the value of the firm. That is, the value of the firm might change with the amount of debt that is present. -
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Blaine Kitchenware Questions: 1) Do you believe that Blaine’s current capital structure and payout policies are appropriate? Why or why not? 2) Should Dubinski recommend a large share repurchase to Blaine’s board? What are the primary advantages and disadvantages of such a move? 3) Consider the following share repurchase proposal: Blaine will use $209 million of cash from its balance sheet and $50 million in new debt bearing an interest rate of 6.75% to repurchase 14 million shares
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Puerto Rico project (Scenario 2), our KPI´s are at the highest value compared versus the other scenarios. You may be wondering how we are going to finance these projects since our current line of credit has been compromised because of our capital structure policy. Since our goal is to keep investing in the above mentioned projects,
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1.Capital structure A capital structure refers to the way a corporation finances its assets through the mix of equity, debt or hybrid securities. The optimal capital structure is the one in which, the market value of the firm is maximized when its cost of capital is minimized. The firm should adopt the EPS- EBIT approach to the capital structure. This approach involves selecting the capital structure that maximizes EPS (Earnings per share) over the expected range of EBIT (Earnings before interest
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Financial Theories Overview Tyrone Freeman University of Phoenix Financial Theories Overview Table 1 Financial Theories Overview |Theories |General Description |Attributes |Current Examples | | |Of the Theories |Of the Theories |Of the Theories | | |
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2015 DEFINITION OF CAPITAL 1. Financial assets or the financial value of assets, such as cash. 2. The factories, machinery and equipment owned by a business and used in production. “Capital” can mean many things. Its specific definition depends on the context in which it is used. In general, it refers to financial resources available for use. Companies and societies with more capital are better off than those with less capital. INVESTOPEDIA EXPLAINS 'CAPITAL' Capital is different from money
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Supplement of Formulae and Present Value Tables Formulae 1. CAPITAL STRUCTURE a) After-Tax Marginal Cost of Debt: kb = k(1− T) or where b) (1− T)I F k = interest rate; T = corporate tax rate; I = annual interest payment on debt; F = face value of debt Cost of Preferred Shares: kp = Dp NPp where c) Dp = stated annual dividend payment on shares; NPp = net proceeds on preferred share issue Cost of Common Equity: i) Cost of Common Shares (Capitalization of Dividends with Constant
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Finance 653 Section 1, TH 1800-2040 SS 2512 Case Studies in Financial Management Sched. 14711 Fall 2003 Instructor: Dr. Hugh Hunter E-mail: hughh3@sbcglobal.net; hhunter@mail.sdsu.edu Office: SSE 3405 Office hours: T 1250-1400, 1700-1830 Note: Hours Phone: 594-6887 TH 1250-1400, 1700-1745 may change Prerequisite: BA 665. FIN 617 or some other 2nd course in corporate finance, such as FIN 325, would help. You should have available a good finance text
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Laminate Technology is depreciated over 10 years Sodium Chlorate price growth is 8%, per annum Power cost (per KWH) growth is 12%, per annum Plant Life is 10 years Plant Salvage Value is zero EBIT is flat after 1984 Capital Expenditures: $600,000 per annum after 1984 Net Working Capital Remains flat after 1984 Definition of “Flat” Reference Pg 3, HBS 9-280-102 Pg 3, HBS 9-280-102 Pg 4, HBS 9-280-102 Pg 4, HBS 9-280-102 Pg 1, Assessed work Sheet Pg 1, Assessed work Sheet Pg 1, Assessed work Sheet Pg
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CHAPTER 14 CAPITAL STRUCTURE: BASIC CONCEPTS Answers to Concept Questions 1. Assumptions of the Modigliani-Miller theory in a world without taxes: 1) Individuals can borrow at the same interest rate at which the firm borrows. Since investors can purchase securities on margin, an individual’s effective interest rate is probably no higher than that for a firm. Therefore, this assumption is reasonable when applying MM’s theory to the real world. If a firm were able to borrow at a rate lower
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