decisions To compare and contrast the NPV and APV methods of analysis Nature of expansion decisions Expansion cash flows Valuation alternatives: NPV; APV Derivation of NPV model Derivation of APV model Capital structure issues Topics: Initial Capital investment Additional Capital investment For replacement and expansion - $ FCF FCFs are a function of value chain and industry economics Expansion FCFs are incremental to the base case and are attributable to the project
Words: 3629 - Pages: 15
solid regional position. Despite stable growth over years, one big concern raised among company’s shareholders as well as financial analysts are its capital structure. As HCSF is all-equity funding, many perceived that the company has more potential to increase its financial performance but leverage in the means of introducing debts in its capital structure. This report considers impacts of such suggestion on both HCSF’s future operation and financial performance I. Operating and financial strategies
Words: 1698 - Pages: 7
Capital structure Issues: What is capital structure? Why is it important? What are the sources of capital available to a company? What is business risk and financial risk? What are the relative costs of debt and equity? What are the main theories of capital structure? Is there an optimal capital structure? 1 What is “Capital Structure”? Definition The capital structure of a firm is the mix of different securities issued by the firm to finance its operations. Securities
Words: 1391 - Pages: 6
BACKGROUND INFORMATION 4 2. COST OF CAPITAL FOR COLEMAN SYSTEMS 5 2.1 Calculate cost of debt (rd) 5 2.2 Calculate ratio debt/capital and equity/capital in market value terms 6 2.3 Calculate Beta (β) for Coleman Systems 8 2.4 Calculate Cost of Equity 10 2.5 Calculate the weighted average cost of capital for Coleman Systems 10 3. THE WACC AND PROJECT VALUES FOR DIFFERENT DEBT – EQUITY RATIOS AND THE OPTIMAL CAPITAL STRUCTURE FOR THE PROJECT 11 3.1 Case
Words: 5094 - Pages: 21
The Capital Structure of Nicci’s Pizza Palace September 13, 2011 The Capital Structure of Nicci’s Pizza Palace A company is funded by debt, equity, or retained earnings. The mixture of debt and equity is the company’s capital structure. There are four factors that influence capital structure; business risk, tax position, financial flexibility, managers, growth rate, and market conditions. Management’s decisions concerning capital structure should be geared toward maximizing the intrinsic value
Words: 1819 - Pages: 8
1.a.) Business risk is the equity risk arising from the nature of the firm’s operating activity, and is directly related to the systematic risk of the firm’s assets. Financial risk is the equity risk that is due entirely to the firm’s chosen capital structure. As financial leverage, or the use of debt increases, so does financial risk and, hence, the overall risk of the equity. Business risk depends on a number of factors, including competition, liability exposure, and operating leverage. b.) In
Words: 1460 - Pages: 6
excellent vehicle for exploring and challenging the notion of optimal capital structure in theory and practice. American Home Products (AHP) is a very successful firm that has not debt in its capital structure. Because of its efficiency in asset management and its high level of profitability, AHP does not need debt to finance its operations. The case focuses on the theory of optimal capital structure and the practical problem of determining an optimal debt ratio. Questions 1. How much business risk
Words: 2021 - Pages: 9
ASSIGNMENT 3 - SUGGESTED ANSWER Capital Budgeting 1. What is meant by mutually exclusive projects? a. projects that clash and would cause the company to exclude the benefits of the project on its cash flows b. when the option to invest in future projects occurs sequentially c. when the cash flows of one project are excluded because they are uncertain d. two competing projects, such as whether to buy a blue delivery truck or a red one 2. Gerhardt
Words: 1867 - Pages: 8
theorem (of Franco Modigliani, Merton Miller) forms the basis for modern thinking on capital structure. The basic theorem states that, under a certain market price process (the classical random walk), in the absence of taxes, bankruptcy costs, agency costs, and asymmetric information, and in an efficient market, the value of a firm is unaffected by how that firm is financed.[1] It does not matter if the firm's capital is raised by issuing stock or selling debt. It does not matter what the firm's dividend
Words: 1010 - Pages: 5
Corporate Finance Fundamentals [FN1] Examination Blueprint 2010–2011 Purpose The Corporate Finance Fundamentals [FN1] examination has been constructed using an examination blueprint. The blueprint, also referred to as the test specifications, outlines the content areas covered on the examination and the weighting allotted to each content area. This document also lists the topics, the level of competence for each topic, and the related learning objectives. The learning objectives have been designed
Words: 2503 - Pages: 11
