$23.3 billion in financings (all debt, common stock, and convertible), instead of sharing the underwriting with additional firms? JPMorgan and Merrill Lynch were selected to underwrite and book-run all of the financings because together they committed $6 billion in bridge loans and to underwrite the entire $17.5 billion in debt financing, plus $1.5 billion in credit lines. This created significant risk by aligning the interests of FCX and the two firms in terms of placing the debt and credit with
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Question 1# Principal activities of SQUARE Pharmaceuticals: * Square strives for top quality health care products at the least cost reaching the lowest rungs of the economic class of people in the country. We value our social obligations. * Square owe their shareholders and strive for protection of their capital as well as ensure highest return and growth of their assets. * Square works for best compensation to all the employees who constitute the back-bone of the management and operational
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Theory of Investment’ 3 Modigliani & Miller 2 6 Modigliani and Miller 3 7 Modigliani & Miller – 1958 4 12 Fama & French (1998) ‘Taxes, Financing Decisions, and Firm Value’ 18 FAMA FRENCH 2 20 Fama & French 3 21 Fama & French – 1998 4 22 Graham (2000) ‘How Big Are the Tax Benefits of Debt?’ 25 GRAHAM (2000) 2 28 Graham 3 29 How big are the tax benefits of debt? John Graham – 2002 4 29 Lecture 2 32 Myers (1984) ‘The Capital Structure Puzzle’ 32 MYERS (1984) The Capital Structure Puzzle 2 36
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Lesson 7 case study extra credit 1. If Stephenson wishes to maximize its total market value, would you recommend that it issue debt or equity to finance the land purchase? Explain. If Stephenson wants to maximize its total market value it should use debt to finance the $100 million dollar purchase. By using the debt to finance it will decrease the overall taxable income the company reports. Since interest payments are tax deductible it will create a tax break for the company which will
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Investing and Financing Cycle |Learning Check | 17-1. Investing activities represent the purchase and sale of land, buildings, equipment, and other assets not generally held for resale. In addition, investing activities include the purchase and sale of financial instruments not intended for trading purposes (discussed in chapter 18). Financing activities include transactions and events whereby cash is obtained from or repaid to creditors (debt financing) or owners (equity financing)
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capital structure. Specify the effect of financial leverage on beta using the Hamada equation, and transform this equation to calculate a firm’s unlevered beta, bU. Illustrate through a graph the premiums for financial risk and business risk at different debt levels. List the assumptions under which Modigliani and Miller proved that a firm’s value is unaffected by its capital structure, then explain trade-off theory, signaling theory, and the effect of taxes and bankruptcy costs on capital structure. List
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by underwriting and or acting as the client's agent in the issuance of securities. An investment bank may also assist companies involved in mergers and acquisitions and provide ancillary services such as market making, trading of derivatives and equity securities, and FICC services (fixed income instruments, currencies and commodities). Investment banks do not take deposits. There are two main lines of business in investment banking. Trading securities for cash or for other securities
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formula are the firm’s equity and debt. According to our text the r above the little e is the required return for equity, and the r above the d is the required return for debt. L is the market value proportion of debt financing and T is the marginal corporate tax rate on income for the proposed project. In word format the equation states that WACC is the equity of the firm divided by the debt plus equity times the required return of equity plus the debt divided by the debt plus equity times one minus the
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CHAPTER 16 WORKING CAPITAL POLICY AND SHORT-TERM FINANCING ANSWERS TO QUESTIONS: 1. The need for working capital arises because the normal operating cycle of the firm requires that expenditures for raw materials, labor, etc. be made prior to receipt of the funds from the sale of the output. Funds must be invested during the operating cycle in the various short-term assets that make up working capital--namely, cash, inventories, and accounts receivable. 2. The operating
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individuals capital structure is can borrow at the same rate as corporations. irrelevant No preference for low debt versus high debt; unrealistic assumptions. Allows interest to be deducted, reduces taxes paid by levered firms; debt "shields" some of the firm's cash flow from taxes. The firm's value increases continuously as more and more debt is used. The cost and availability of debt might affect its ability to pursue capital spending programs MM - Corporate Taxes MM - Corporate
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