Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers Michael C. Jensen Harvard Business School MJensen@hbs.edu Abstract The interests and incentives of managers and shareholders conflict over such issues as the optimal size of the firm and the payment of cash to shareholders. These conflicts are especially severe in firms with large free cash flows—more cash than profitable investment opportunities. The theory developed here explains 1) the benefits of debt in reducing agency costs
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in-depth discussion of key topics that are critical to financial management: (1) the goals of the firms, (2) financial statement analysis, planning, and forecasting, (3) working capital policy and management, (4) capital budgeting techniques without and with risk, (5) capital structure theory and application, (5) the cost of capital estimation, and (6) long-term financing decisions. In addition, the course examines issues such as lease financing, merger and acquisition, and international financial management
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of these decisions is the process of valuation, which will be emphasized throughout the course. Topics include criteria for making investment decisions, valuation of financial assets and liabilities, relationships between risk and return, capital structure choice, payout policy, the effective use and valuation of derivative securities (futures, options), and risk management. 1 COURSE MATERIALS Textbook The textbook for the course is: Corporate Finance (plus MyFinanceLab), Jonathan
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AHP will have a new executive who may wish to change the capital structure by adding debt in order to increase shareholder wealth. At the time, AHP had practically no debt on its balance sheet; while the most comparable company, Warner-Lambert had a debt ratio of 32% and a bond rating between AAA and AA. PROBLEM STATEMENT The inevitable retirement of AHP’s chief executive has analysts wondering what, if any, change to AHP’s capital structure might look like. Furthermore, analysts are curious to know
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A MODEL OF OPTIMAL INTERNATIONAL MARKET EXPANSION THE CASE OF US HOTEL CHAINS EXPANSION INTO CHINA E. Hachemi Aliouche, Ph.D. Associate Professor, Hospitality Management Whittemore School of Business and Economics UNIVERSITY OF NEW HAMPSHIRE, USA and Udo Schlentrich, Ph.D. Associate Professor, Hospitality Management Whittemore School of Business and Economics UNIVERSITY OF NEW HAMPSHIRE, USA ABSTRACT: Departing from the explanatory and descriptive approaches common in many of the academic studies
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Chapter 11 Efficient Capital Markets: Evidence 1. Roll’s critique (1977) is based on the assumption that capital markets are in equilibrium. What happens when the market is not in equilibrium? Suppose new information is revealed such that the market must adjust toward a new equilibrium which incorporates the news. Or suppose that a new security is introduced into the marketplace, as was the case of new issues studied in the Ibbotson (1975) paper. Given such a situation, the abnormal performance
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influence the capital structure. The theory of Capital structure is closely related to the firm’s cost of capital. It is one of the effective tools of management to manage the cost of capital. Capital structure is the mix of the long-term sources of funds used by the firm. The primary objective of capital structure decisions is to maximize the market value of the firm or achieving the maximization of shareholders wealth through an appropriate mix of long-term sources of funds and an optimal capital
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MP A R Munich Personal RePEc Archive Optimal choice of an exchange rate regime: a critical literature review Mariam Ouchen Cadi Ayyad University, Faculty of Economics Marrakesh Morocco, University of Basel 17. January 2013 Online at http://mpra.ub.uni-muenchen.de/43907/ MPRA Paper No. 43907, posted 21. January 2013 12:56 UTC Optimal Choice of an Exchange Rate Regime: A Critical Literature Review 1 Mariam OUCHEN Laboratory of innovation, responsibility and sustainable development Cadi Ayyad University
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occupies. As the CEO of the company, Mr. Dubinski is faced with the difficult decision of determining what is the best for the family company. The following questions will address what decision is the optimal and why it is beneficial for BKI. * Do you believe Blaine’s current capital structure and payout policies are appropriate? Why or why not? The main dilemma in the case is whether Blaine Kitchenware’s should choose to repurchase its own shares or not. If Blaine’s Kitchenware does repurchase
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STUDENT RESEARCH PROJECT Estimating the Cost of Capital of CNX Nifty Prepared by Bhaswar Sarkar Student of PGDM Program of 2011-2013 Xavier Institute of Management, Bhubaneswar Supervised by Dr. Shridhar Kumar Dash Professor, Accounting and Finance Xavier Institute of Management, Bhubaneswar March 2013 Estimating the Cost of Capital of CNX Nifty Prepared by Bhaswar Sarkar1 Abstract This paper calculates the cost of capital of the CNX Nifty 50 Stock Index. It explores the
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