Chapter 12 Leverage and Capital Structure Solution to Problems P12-1. LG 1: Breakeven Point–Algebraic Basic FC (P − VC) $12, 350 Q= = 1, 300 ($24.95 − $15.45) Q= P12-2. LG 1: Breakeven Comparisons–Algebraic Basic (a) Q = FC (P − VC) Q= Q= Q= $45, 000 = 4, 000 units ( $18.00 − $6.75) $30, 000 = 4, 000 units ( $21.00 − $13.50 ) $90, 000 = 5, 000 units $30.00 − $12.00 ) ( Firm F: Firm G: Firm H: (b) From least risky to most risky: F and G are of equal risk, then H. It is important to
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BACKGROUND In 1981, AHP had reached sales of more than $4 billion by producing 1,500 marketed brands in 4 different kind of business; prescription drugs, packaged drugs, food products, and housewares and households products. Moreover, AHP is known to be the largest and profitable business in prescription of drugs; however, the company has a sizable market share in antihypertensive, tranquilizers, and oral contraceptives. The company has almost debt- free balance sheet and growing cash reserves (40%
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Roger Clarke Grant McQueen Revised 2001 Some Indicators of a Firm's Risk and Debt Capacity Introduction One notion of the riskiness of a firm is the extent to which the firm’s earnings can fluctuate from period to period in response to changes in total firm revenues. The variability of earnings relative to revenues is determined by two categories of risk. The first source of risk is business risk and is related to the basic industry and operating decisions of the firm. Business
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Modigliani and Miller's Capital-Structure Irrelevance Proposition Modigliani and Miller, two professors in the 1950s, studied capital-structure theory intensely. From their analysis, they developed the capital-structure irrelevance proposition. Essentially, they hypothesized that in perfect markets, it does not matter what capital structure a company uses to finance its operations. The MM study is based on the following key assumptions: * No taxes * No transaction costs * No bankruptcy
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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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------------------------------------------------- Polaroid Corporation, 1996 Prof. Ragupathy M B FINANCE – II Submitted by: Nidhi Kanojia 2011PGP749 Section B Prof. Ragupathy M B FINANCE – II Submitted by: Nidhi Kanojia 2011PGP749 Section B Current Financial issues in raising capital Ralph Norwood has just recently been appointed treasurer of Polaroid. Faced with notes outstanding of $150 million which will mature in less than a year, as well as the restructuring plan of the new CEO which needs funding, Norwood decided to present
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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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INTRODUCTION This memo addresses the feasibility of the NESA project and provides a brief overview of: our financial condition, the iron ore market, major risks associated with this project, estimated project NPV, and the benefits of the financing packages. From our analysis, the NPV of this project is $137.36M - $104.31M. While there is risk associated with venturing into an unfamiliar market in a politically volatile country, the debt financing packages mitigate this risk. Thus, we believe that
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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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University of South Carolina Moore School of Business FINA 761 (800): Advanced Corporate Finance Fall 2013 Instructor: Eric Powers |Class time: |T/TH 2:50 – 5:35 | |Location: |364 | |Office Hours: |TBD | |Office Hour Location: |BA 462 | |E-mail:
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