Ebook Corporate finance (3rd edition): Part 2
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Ebook Corporate finance (3rd edition): Part 2
Find more at www.downloadslide.comCapital StructureTHE LAW OF ONE PRICE CONNECTION. One of the fundamental questions in corporate finance is how a fir Ebook Corporate finance (3rd edition): Part 2rm should choose the set of securities it will issue to raise capital from investors. This decision determines the firm's capital structure, which is the total amount of debt, equity, and other securities that a firm has outstanding. Does the choice of capital structure affect the value of the firm? Ebook Corporate finance (3rd edition): Part 2 In Chapter 14, we consider this question in a perfect capital market. There we apply the Law of One Price to show that as long as the cash flows geneEbook Corporate finance (3rd edition): Part 2
rated by the firm's assets are unchanged, then the value of the firm—which is the total value of its outstanding securities-does not depend on its capFind more at www.downloadslide.comCapital StructureTHE LAW OF ONE PRICE CONNECTION. One of the fundamental questions in corporate finance is how a fir Ebook Corporate finance (3rd edition): Part 2sult from market imperfections. We explore important market imperfections in subsequent chapters. In Chapter 15, we analyze the role of debt in reducing the taxes a firm or its investors will pay, while in Chapter 16, we consider the costs of financial distress and changes to managerial incentives t Ebook Corporate finance (3rd edition): Part 2hat result from leverage. Finally, in Chapter 17, we consider the firm's choice of payout policy and ask: Which is the best method for the firm to retEbook Corporate finance (3rd edition): Part 2
urn capital to its investors? The Law of One Price implies that the firm's choice to pay dividends or repurchase its stock will not affect its value iFind more at www.downloadslide.comCapital StructureTHE LAW OF ONE PRICE CONNECTION. One of the fundamental questions in corporate finance is how a fir Ebook Corporate finance (3rd edition): Part 214Capital Structure in a Perfect MarketCHAPTER 15Debt and TaxesCHAPTER 16Financial Distress,ManagerialIncentives, andInformationCHAPTER 17Payout Policy477Find more al www.downloadslide.comhttps://khothuvien.coniCapital Structure in a Perfect Market14NOTATIONPV present valueNPV net present valueE mar Ebook Corporate finance (3rd edition): Part 2ket value of levered equityD market value of debtu market value of unlevered equityzf market value of firm assetsRf) return on debtRe return on levereEbook Corporate finance (3rd edition): Part 2
d equityRy return on unlevered equity rD expected return (costof capital) of debtr£ expected return (cost of capital) of levered equityry expected retFind more at www.downloadslide.comCapital StructureTHE LAW OF ONE PRICE CONNECTION. One of the fundamental questions in corporate finance is how a fir Ebook Corporate finance (3rd edition): Part 2rest $E beta of levered equity fiy beta of unlevered equity (il) beta of debtEPS earnings per shareWHEN A FIRM NEEDS TO RAISE NEW FUNDS TO UNDERTAKE its investments, it must decide which type of security it will sell to investors. Even absent a need for new funds, firms can issue new securities and Ebook Corporate finance (3rd edition): Part 2use the funds to repay debt or repurchase shares. What considerations should guide these decisions?Consider the case of Dan Harris, Chief Financial OfEbook Corporate finance (3rd edition): Part 2
ficer of Electronic Business Services (EBS), who has been reviewing plans for a major expansion of the firm. To pursue the expansion, EBS plans to raiFind more at www.downloadslide.comCapital StructureTHE LAW OF ONE PRICE CONNECTION. One of the fundamental questions in corporate finance is how a fir Ebook Corporate finance (3rd edition): Part 2t equity investors will require a 10% risk premium over the 5% risk-free interest rate. That is, the company's equity cost of capital is 15%.Some senior executives at EBS, however, have argued that the firm should consider borrowing the $50 million instead. EBS has not borrowed previously and, given Ebook Corporate finance (3rd edition): Part 2 its strong balance sheet, it should be able to borrow at a 6% interest rate. Does the low interest rate of debt make borrowing a better choice of finEbook Corporate finance (3rd edition): Part 2
ancing for EBS? If EBS does borrow, will this choice affect the NPV of the expansion, and therefore change the value of the firm and its share price?WFind more at www.downloadslide.comCapital StructureTHE LAW OF ONE PRICE CONNECTION. One of the fundamental questions in corporate finance is how a fir Ebook Corporate finance (3rd edition): Part 2ansaction costs, and the total cash flows of the firm's projects are not affected by how the firm finances them. Although in reality capital markets are not perfect, this setting provides an important benchmark. Perhaps surprisingly, with perfect capital markets, the Law of One Price implies that th Ebook Corporate finance (3rd edition): Part 2e choice of debt or equity financing will not affect the total value of a firm, its share price, or its cost of capital. Thus, in a perfect world, EBSEbook Corporate finance (3rd edition): Part 2
will be indifferent regarding the choice of financing for its expansion.Find more at www.downloadslide.comCapital StructureTHE LAW OF ONE PRICE CONNECTION. One of the fundamental questions in corporate finance is how a firFind more at www.downloadslide.comCapital StructureTHE LAW OF ONE PRICE CONNECTION. One of the fundamental questions in corporate finance is how a firGọi ngay
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