to grow. The firm is currently financed completely with equity, and it has 10 million shares outstanding. When you took your corporate finance course, your instructor stated that most firms’ owners would be financially better off if the firms used some debt. When you suggested this to your new boss, he encouraged you to pursue the idea. As a first step, assume that you obtained from the firm’s investment banker the following estimated costs of debt for the firm at different capital structures:
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LAHORE COLLEGE FOR WOMEN UNIVERSITY DEPARTMENT OF MANAGEMENT SCIENCES ORGNISATIONAL BEHAVIOUR ASSIGNMENT TOPIC: EQUITY THEORY SUBMITTED TO: MS. SHAISTA JABEEN SUBMITTED BY: SONIA TAUHID 848 BBA-VIII INTRODUCTION TO EQUITY THEORY There was a time when employers thought employees to be just another input required for production of output, that is, goods and services. This thinking was changed with the research conducted known as Hawthorne Studies, by Elton Mayo from 1924
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RISK AND THE COST OF CAPITAL Brealey, Myers, and Allen Principles of Corporate Finance Principles Brealey, Myers,Finance of Corporate and Allen 10th Edition 11th Edition Presented by: Nguyen Xuan Thang Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. 9-1 COMPANY AND PROJECT COSTS OF CAPITAL • Firm Value • Sum of value of assets Firm value PV(AB) PV(A) PV(B) 9-2 1 25/03/2014 FIGURE 9.1 COMPANY COST OF CAPITAL • A company’s cost of capital can
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^^ rives . Customer Equity A company's current customers provide the most reliable source of future revenues and profits. t By Katherine N. Lemon, Roland T. Rust, and Valarie A. ZeithamI 20 I MM S p r i n g 2001 C o n s i d e r t h e i s s u e s facing a typical brand manager, product manager, or marketing-oriented CEO: How do I manage the brand? How will my customers react to changes in the product or service offering? Should 1 raise price? What is the best way to enhance the relationships
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does Weighted Average Cost Of Capital (WACC) mean? A calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All capital sources - common stock, preferred stock, bonds and any other long-term debt - are included in a WACC calculation. All else equal, the WACC of a firm increases as the beta and rate of return on equity increases, as an increase in WACC notes a decrease in valuation and a higher risk. The WACC equation is the cost of each capital component multiplied
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the relationship between leverage and cost of equity. Without taxes, Proposition II is rsL = rsU + (rsU – rd)(1 – T)(D/S). Thus, rs increases in a precise way as leverage increases. In fact, this increase is just sufficient to offset the increased use of lower cost debt. When corporate taxes are added, Proposition II becomes Here the increase in equity costs is less than the zero-tax case, and the increasing use of lower cost debt causes the firm’s cost of capital to decrease, and again, the
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1/30/2014 Best Practices in Estimating Cost of Capital For financial managers as well as any major corporation, being able to calculate how much it costs to raise capital is an essential task for any investment decision. To determine if a company should take on a certain project, it needs to calculate a minimum rate of return that is acceptable to compensate for risk from the project. This is accomplished by using the firm’s separate costs in raising capital needed to fund the project. The
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HOW DO CFOS MAKE CAPITAL BUDGETING AND CAPITAL STRUCTURE DECISIONS? by John Graham and Campbell Harvey, Duke University* e recently conducted a comprehensive survey that analyzed the current practice of corporate finance, with particular focus on the areas of capital budgeting and capital structure. The survey results enabled us to identify aspects of corporate practice that are consistent with finance theory, as well as aspects that are hard to reconcile with what we teach in our business
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liquidity of capital and enable cheaper access to open market. Furthermore, going public enhance the popularity of a company and make it easier to fund from other financial institutions such as commercial banks in the future. On the other hand, the cost of IPO is expensive and it requires a company to disclose the financial and business information to publc investors. JetBlue Airways Corporation is an American low-fare airline headquartered in New York city and its home base is John F. Kennedy
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to facilitate their smooth operations. Cash requirement can be raised from different sources, ranging from equity, various forms of debt, to internally generated funds through retained earnings which would otherwise be distributed to shareholders (Myers and Myers, 1991; J. Gitman, 1991). The sources of finance can be classified as Internal and External, Short-term and Long-term or Equity and Debt (Bromwich & Bhimani, 2009, pp.45). The two main sources of finance for business include internal and
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