econstor www.econstor.eu Der Open-Access-Publikationsserver der ZBW – Leibniz-Informationszentrum Wirtschaft The Open Access Publication Server of the ZBW – Leibniz Information Centre for Economics Faulkender, Michael; Petersen, Mitchell A. Working Paper Does the source of capital affect capital structure? CSIO working paper, No. 0054 Provided in Cooperation with: Department of Economics - Center for the Study of Industrial Organization (CSIO), Northwestern University Suggested Citation: Faulkender
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companies have a gap between cash they need and cash they generate internally. This gap is financial deficit. So companies have to either sell new equity or borrow.This causes two different kinds of problems: 1) The plow back ratio? => Dividend policy 2) The proportions of debt and issue of equity? => Debt policy. • Net stock issue is negative = Company repurchases more stocks than issues them. Reasons for internally generated
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Chapter 17 Distributions to Shareholders: Dividends and Repurchases ANSWERS TO BEGINNING-OF-CHAPTER QUESTIONS 17-1 Investors who prefer a high payout policy would generally (a) need current cash income and (b) be in a low income tax bracket. Those who prefer a low payout would not need cash currently and would be in a high tax bracket. Universities and other tax-exempt institutions, and many retirees, are examples of those who prefer cash dividends, while people in their peak earning years
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these two assets. Basic accounting begins with this equation: total assets equal liabilities plus stockholders’ equity (text under Communicating with Users, Balance Sheet). Assets are items that the business owns that might be used if required to produce money. Claims to assets are divided into two categories: claims of creditors or liabilities and claims of owners or stockholders’ equity. Internal users use the balance sheet to determine if the company has enough cash to operate. External users
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relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem. The directors of such [joint-stock]
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relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem. The directors of such [joint-stock]
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You’ll Learn in This Chapter ▲ ▲ ▲ ▲ ▲ ▲ ▲ The five basic types of financial ratios How to use financial ratios properly in order to achieve financial growth When to use specific ratios in different situations How internally generated financing occurs The effect of ratio analysis on long-term financial planning How to read a financial statement The application of the cost-volume-profit analysis concept After Studying This Chapter, You’ll Be Able To ▲ ▲ ▲ ▲ ▲ ▲ Distinguish
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| |1, 2, 5, 6 | | |of statement. |8, 12 | | | | | |2. |Classifying investing, financing, and |3, 4, 5, 6, |1, 2, 3, |1, 2, 10, 16 | |1, 3, 4, 5 | | |operating activities. |16, 17, 19 |6, 7, | | |
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------------------------------------------------- Chapter 9 ------------------------------------------------- Financial Planning and Forecasting Financial Statements ------------------------------------------------- ANSWERS TO BEGINNING-OF-CHAPTER QUESTIONS We like to use discussion questions along with relatively simple and easy to follow calculations for our lectures. Unfortunately, forecasting is by its very nature relatively complex, and it simply cannot be done in a realistic
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after-tax component costs of capital—-debt, preferred stock, and common equity. Each weighting factor is the proportion of that type of capital in the optimal, or target, capital structure. The after-tax cost of debt, rd(1 - T), is the relevant cost to the firm of new debt financing. Since interest is deductible from taxable income, the after-tax cost of debt to the firm is less than the before-tax cost. Thus, rd(1 - T) is the appropriate component cost of debt (in the weighted average cost of capital)
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