Silbernagel Davis Vaitkunas Bond Capital With a supplement by Ian Giddy Mezzanine Debt--Another Level To Consider Mezzanine debt is used by companies that are cash flow positive to fund: further growth through expansion projects; acquisitions; recapitalizations; and, management and leveraged buyouts. When mezzanine debt is used in conjunction with senior debt it reduces the amount of equity required in the business. As equity is the most expensive form of capital, it is most cost effective to create a
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| Table of Contents 1. EXECUTIVE SUMMARY 2 2. COMPANY AND INDUSTRY OVERVIEW 3 3.1 Historical Company Leverage Financing & Peer Industry Leverage Analysis 5 3.1.1 Interest Coverage Ratio 6 3.1.2 Managerial Inertia Theory 7 3.1.3 Security Mispricing Theory 7 3.1.4 Pecking Order Theory 8 3.2 Optimal Leverage Analysis 8 3.2.1 Trade -Off
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the different sources 6 Task 1.3: Evaluate appropriate sources of finance for a business project 7 Task 2.1: Analyze costs of different sources of finance 10 Task 2.2: The importance of financial planning 12 Task 2.3: The information needs for financing decisions required by managers 13 Task 2.4: The impact of finance on the financial statements 15 References 18 Company background: Established in 2001 and officially went into operation in 2003, Dairy Products
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capital structure, or mix of debt and equity, of the firm. They must also determine the cost of their debt, the cost of their equity, and the cost to acquire new capital. Generally, a firm’s cost of capital is what it costs the firm to acquire money. It may also be thought of as the rate required by investors (lenders or shareholders) for the use of their money. The cost of capital could be the cost of the financing the firm already has or it could be the cost of new financing, which is referred to as
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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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healthcare organizations have to keep themselves updated with all the technological advancements and innovations taking place, as a result financing needs are always arising. The financing could either be done through equity or debt. Equity would be more costly as compared to debt. Therefore, healthcare organizations would need to rise financing through various debt alternatives, one of which is bank loans. It is understood that the borrowing costs are lower for a merged firm, as compared to if the companies
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have been successful? Why or why not? Stone Container Corporation (“Stone”) has historically been an acquisitive company. However, in the wake of the Great Depression, its founders established a longstanding policy to “not to carry any significant debt for long periods of time”. Prior to 1979, acquisitions that served to diversify the company’s product offering and geographic presence were typically paid for with a combination of cash and loans that were repaid early. While Stone completed an initial
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refers to the way a corporation finances its assets through some combination of equity and debt. A firm's capital structure is the composition of structure of its liabilities. According to Modigliani-Miller theorem, in a perfect capital market (no transaction or bankruptcy costs; perfect information); firms and individuals can borrow at the same interest rate; no taxes; and investment decisions aren't affected by financing decisions. Modigliani and Miller made two findings under these conditions. Their
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Definition – Financing and risk management choices will not affect firm value if the following conditions hold: (1) Total cash flow to a firm’s financial claimants are unaffected by these choices; (2) Efficient markets Frictionless and complete markets are clearly sufficient for capital structure irrelevant. MM II Corporation need not be concerned about the market conditions and needs of investors when designing their financial structures Definition – the cost of capital of levered equity is equal
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Liabilities|9693||8925|12030.90|12058.30| |Shareholder's Equity|2154||2275|5402.90|5172.30| |Debt to Equity Ratio|4.50||3.92|2.23|2.33| Kellogg's has got a better debt to equity ratio during both the years 2010 and 2009 Kellogg's has more debts than equity compared to General Mills. This means that interest expenses of Kellogg's is more than the interest expenses of General Mills. This also means the assets of the Kellogg's has been acquired more by raising debts than share capital. 2||Kelloggs||General
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