Lecture 13: Capital Structure Theory Exercises Question 1 Levered Inc. and Unlevered Inc. are identical in every respect except for capital structure. Both companies expect to earn $150 million in perpetuity, and both distribute all of their earnings as dividends. Levered’s perpetual debt has a market value of $300 million and the required return on its debt is 7%. Levered’s stock sells for $100 per share, and there are 5 million shares outstanding. Unlevered has 8 million shares outstanding worth
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Financial Leverage And Capital Structure Policy 0 Chapter Outline The Capital Structure Question The Effect of Financial Leverage Capital Structure and the Cost of Equity Capital M&M Propositions I and II with Corporate Taxes Bankruptcy Costs Optimal Capital Structure 1 Capital Restructuring We are going to look at how changes in capital structure affect the value of the firm, all else equal Capital restructuring involves changing the amount of leverage
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Case Assignment: Calpine Corporation Restructuring This case illustrates how bargaining among bankruptcy stakeholders over enterprise value functions inside the confines of a Chapter 11 case. Calpine is a leading independent provider of energy that filed for Chapter 11 protection in December 2005. This case picks up in early November 2007, just prior to a November 15, 2007 deadline set by the bankruptcy judge for submission of expert reports on the enterprise valuation of the restructured Calpine
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the best financing mix or capital structure for his firm. Capital structure could have two effects. First, firms of the same risk class could possibly have higher cost of capital with higher leverage. Second, capital structure may affect the valuation of the firm, with more leveraged firms, being riskier, being valued lower than less leveraged firms. If we consider that the manager of a firm has the shareholders' wealth maximisation as his objective, then capital structure is an important decision
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is the capital structure of your business? Discuss the ratios that are used to describe capital structure and assess their importance. * How can you use operating leverage in your business? * · Assess the level of financial and operating risk for your business * · What factors are likely to influence your CFO's debt policy? You often hear corporate officers, professional investors, and analysts discuss a company's capital structure. You may not know what a capital structure is or
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Rogers Capital Structure When firm’s have a mixture of debt and equity it is called Capital Structure. A firm’s capital structure decision includes its choice of a target capital structure, the average maturity of its debt, and the specific types of financing it decides to use at any particular time. The value of a firm’s operations is the present value of its expected future free cash flow (FCF) discounted at its weighted average cost of capital (WACC). The WACC depends on
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Evaluation of capital structure 1.1Capital Structure: Basic Concepts The purpose of this chapter is to introduce the student to the foundations of capital structure concepts. The chapter first discusses capital structure decisions in an ideal world without taxes or transaction costs. This discussion leads to the famous Modigliani-Miller Propositions I and II that show that a firm's capital structure is a matter of indifference. The discussion next adds corporate taxes and the tax deductibility
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company specific variable. Here, we shall try to figure out main driving factors, i.e corporate decisions, dse decisions. Specially, we shall try to figure out corporate decisions like Dividend declaration, Account closing, EPS, Retention, Capital structure decision, Marketing etc that are responsible for a remarkable fluctuation in stock price movement. Share Price Movement for the year of April 2010 to April 2011: [pic] Figure-17: Stock Price movement of Sonargaon Textiles for the year
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mentioned in the paper, they are: description, diagnosis and prescription. The first element is to define the financial policies of an organization. The second element is to design or create a good financial structure, after that to develop the suggested actual financial designs and structures to choose the best among them and look for opportunities to improve it. The last element is the impact of what is taken as a decision in the first and the second phases or elements. According to the phase one
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Accounting Govt. Azizul Haque College, Bogra Subject: Submission of Internal Term Paper Dear sir, I have the honour to state that I would like convey to your knowledge that as per our BBA program, I have prepared my Term paper under the topic of “Capital Structure Decision of a Firm” .Under your kind supervision. Now I like to submit my Term paper to you. I have tried my level best to prepare. The paper is consistence with the optional standard under your valuable. I request you modesty to accept my paper
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