effect of debt on returns Basic Definitions • • • • • V = value of business FCF = free cash flow WACC = weighted average cost of capital rs and rd are costs of stock and debt re and wd are percentages of the business that are financed with stock and debt. • VU = value of unleveraged business • VL = value of leveraged business Capital Structure Theory • MM theory – Zero taxes – Corporate taxes – Corporate and personal taxes • Trade-off theory • Signaling theory • Debt financing as a managerial
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Kelly Services, Inc. Group 7 Has Kelly Services Inc. underperformed or outperformed its competitors? On what dimensions? Financial ratios are great indicators to find a firm’s performance and financial situation. Most of the ratios are able to be calculated through the use of financial statements provided by the firm itself. They show the relationship between two or more financial variables that can be used to analyze trends and to compare the firm’s
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E. BUSINESS FINANCE 1. 2. 3. 4. 5. Sources of, and raising short-term finance Sources of, and raising long-term finance Internal sources of finance and dividend policy Gearing and capital structure considerations Finance for small and medium-size entities Sources of, and raising short-term finance What are the sources of short-term finance available to businesses? Overdrafts Short-term loans Trade credit Lease finance What are short-term finances usually needed for? Short-term finance
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An additional debt has an effect on WACC and FCF: On WACC: -debt increase the cost of stock rs as the stockholders require a higher return due to the risk associated with additional debt -debt reduce the tax paid by the company as the interest is tax deductible -debt increase the risk of bankruptcy so debtholders will require a higher promised return rd ***low taxes Vs high cost of equity,high cost of debt => uncertain effect on WACC
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concerns for financing. In her own words, Ms. Beaumont expressed that the cost of financing growth right now was high and Friendly Card's projects 20% growth over the next year and even more in subsequent years. Further stating, the company had never been without financing problems and had always been capital intensive relying on strong relations with its banks and suppliers in realizing success. Still, Friendly’s bankers have begun to feel uneasy regarding the company’s heavy reliance on debt capital
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Mekelle University College of Business and Economics Department of Accounting and Finance THE DETERMINANTS OF CAPITAL STRUCTURE Evidence from Commercial Banks in Ethiopia By K i b ro m M e h a ri F i s s e h a Reg.No.-CBE/PR0025/01 Research Project Submitted to the Department of Accounting and Finance, College of Business and Economics, Mekelle University, for the partial fulfillment of the degree of Master of Finance and Investment Under the Guidance of Aregawi Gebremichael
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general presentation and display items. See those Topics for general guidance. General > Form and Content 45-1 A statement of cash flows shall report the cash effects during a period of an entity's operations, its investing transactions, and its financing transactions. 45-2 A reconciliation of net income and net cash flow from operating activities, which generally provides information about the net effects of operating transactions and other events that affect net income and operating cash flows in
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| 1.32050173 | 1.2852186 | 1.3542573 | * Long Term Solvency: equity multiplier, total debt ratio, interest coverage ratio Long term solvency ratios | | | | | 1993 | 1994 | 1995 | Total asset | 6580 | 7822 | 8983 | Total equity | 3268 | 4065 | 5015 | Equity multiplier | 2.01346389 | 1.92423124 | 1.79122632 | | | | | Total asset | 6580 | 7822 | 8983 | Total equity | 3268 | 4065 | 5015 | Total debt ratio | 0.50334347 | 0.48031194 | 0.44172326 | | | | | EBIT
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320 EXAM REVIEW Difference between managers and entrepreneurs? |Characteristic |Entrepreneur | | | | |Manager | |Behavior |Desire for control |Delegation of
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Assignment 3: Required Assignment 3 –Calculating Financial Ratios George L. Burga Prof. Leon Grove Financial Management Argosy University October 03, 2015 * Download a company’s balance sheet and income statement from one of the many sites where financials are available, such as Zacks Investment Research or MarketWatch. * Choose five financial ratios, one from each of the five categories described in Chapter 3 of Brigham and Ehrhardt (i.e., liquidity, asset management, financial leverage
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