Business Financing and the Capital Structure 1 Business Financing and Capital Structure Clifton Williams Strayer University Professor Henderson Fin 100 May 24, 2014 Business have to make many financial decision that a direct impact on operations and the ability to successfully compete in the marketplace. I will assume that I am a financial advisor to a business. I will give advice that I would give to the client for raising business capital using both debt and equity
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Structure, Notes 1. What is Capital Structure (CS)? It is the mix of debt and equity on the balance sheet. The basic capital structure question is: How much debt is right for this company? Contrary to what your momma may have taught you, according to the so-called finance experts too little debt may be just as costly as too much debt, because debt financing is usually the cheapest source. This is why it is often said that debt is a two-edged sword: too much is bad but so is too little. 2. Why
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1970’s, the company had to assume a substantial portion of debt of Conoco, a newly acquired company. In 1983, the managers have to decide about the future optimal target debt ratio. Should the company continue to keep about 40% of its assets financed via debt or should it strive to lower its borrowings to 25%? We defined several criteria to determine our choice – return, risks and other quantitative and qualitative factors. Targeting a debt ratio of 40% will maximize the firm’s value. A higher earning’s
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however, not sufficient. Firms require financial management capability to realize the rents present in their strategic assets. The firm-specific nature of strategic assets implies that they be financed primarily through equity; other less specific assets should be financed through debt. Firms are likely to suffer increased costs and decreased performance if they do not adopt suitable governance structures in their transactions with potential suppliers of funds. INTRODUCTION The recently developed
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source of financing for his project. He can have many options available in the form of equity and debt to finance his plan mainly due his good reputation and financial performance in the past years. The three best options of funding for Andy would be: 1. Common equity 2. Debentures 3. Bank Loan Common equity: It is a form of financing where a company raises funds from the public by giving him/her a share of ownership for the amount of fund provided by them. In this form of financing the holder
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[pic] |1.1 PRELUDE | Financial Structure is the framework of various types of financing employed by a Oil company to acquire and support resources necessary for its operations, commonly, it comprises of stockholders’ investments, long- term loans, short-term loans and short-term liabilities as reflected on the right hand side of the Oil
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Major Differences in Equity-financing and Debt-financing In Islamic Finance And Conventional Finance In equity financing, there are practically no major differences. The contract of al-Musharakah (Joint-Venture ProfitSharing) is, in essence, similar to the conventional concept of joint-stock company. Therefore - except for some minor to finance projects through equity participation, to float a company on the stock exchange, to organise a venture capital company, or to form an equity unit trust, would
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positive NPV and a irr higher then the set hurdle rate - relative to market interest rates, project risk, and estimates . then this is consistent with its strategy of growth • Optimize the use of debt in the capital structure. o by focusing on its ability to service its debt. The lower they can bring their debt percentage their value will increase and is consistent with its strategy of growth • Repurchase undervalued shares o Buys backs will result in a higher PE ratio and investors currently holding
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introduce two different type of options that could achieve success for an organization. This includes debt and equity financing and which option is better for certain organizations. The writer will then conclude with his recommendations which could accommodate certain industries. These options allow team of analysts to better serve a business in order to successfully operate or expanding. Debt Financing As organizations try to succeed in the business world many often are left in the red do to many
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be met through external financing? 3. What constraints do they face in satisfying CCI’s funding needs? Assume a 65% floor on CCIs economic stake” 4. Analyze the proposed solutions. What is a Felines Prides security? What are the advantages/disadvantages to firms using this security? Decompose this security into its debt and equity components. What, economically, is a firm doing when it issues a Felines prides security.? 5. What solution seems to satisfy the financing constraints determined above
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