Capital structure refers to the way a corporation finances its assets through some combination of equity and debt. A firm's capital structure is the composition of structure of its liabilities. According to Modigliani-Miller theorem, in a perfect capital market (no transaction or bankruptcy costs; perfect information); firms and individuals can borrow at the same interest rate; no taxes; and investment decisions aren't affected by financing decisions. Modigliani and Miller made two findings under
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------------------------------------------------- Polaroid Corporation, 1996 Prof. Ragupathy M B FINANCE – II Submitted by: Nidhi Kanojia 2011PGP749 Section B Prof. Ragupathy M B FINANCE – II Submitted by: Nidhi Kanojia 2011PGP749 Section B Current Financial issues in raising capital Ralph Norwood has just recently been appointed treasurer of Polaroid. Faced with notes outstanding of $150 million which will mature in less than a year, as well as the restructuring plan of the new CEO which needs funding, Norwood decided to present
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Shaquille Monroe-Gaskins Chapter 13 Summary Leverage and Capital Structure Leverage refers to the effects that fixed costs have on the returns that shareholders earn. “Fixed costs” refer to costs that do not rise and fall with changes in a firm’s sales. Capital structure is the mix of long-term debt and equity maintained by the firm. Breakeven analysis is used to indicate the level of operations necessary to cover all costs and to evaluate the profitability associated with various levels
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Chapter 12 Leverage and Capital Structure Solution to Problems P12-1. LG 1: Breakeven Point–Algebraic Basic FC (P − VC) $12, 350 Q= = 1, 300 ($24.95 − $15.45) Q= P12-2. LG 1: Breakeven Comparisons–Algebraic Basic (a) Q = FC (P − VC) Q= Q= Q= $45, 000 = 4, 000 units ( $18.00 − $6.75) $30, 000 = 4, 000 units ( $21.00 − $13.50 ) $90, 000 = 5, 000 units $30.00 − $12.00 ) ( Firm F: Firm G: Firm H: (b) From least risky to most risky: F and G are of equal risk, then H. It is important to
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Blaine Kitchenware Questions: 1) Do you believe that Blaine’s current capital structure and payout policies are appropriate? Why or why not? 2) Should Dubinski recommend a large share repurchase to Blaine’s board? What are the primary advantages and disadvantages of such a move? 3) Consider the following share repurchase proposal: Blaine will use $209 million of cash from its balance sheet and $50 million in new debt bearing an interest rate of 6.75% to repurchase 14 million shares
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Financial Leverage And Capital Structure Policy 0 Chapter Outline The Capital Structure Question The Effect of Financial Leverage Capital Structure and the Cost of Equity Capital M&M Propositions I and II with Corporate Taxes Bankruptcy Costs Optimal Capital Structure 1 Capital Restructuring We are going to look at how changes in capital structure affect the value of the firm, all else equal Capital restructuring involves changing the amount of leverage
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finance with their article “The cost of capital, corporate finance and the theory of investment”. Before Modigliani’s and Miller’s article, literature on the topic mainly focused on descriptions of methods and institutions. Theoretical analysis was very rare (Pagano 2008). Under the assumption of perfect capital markets, the Modigliani-Miller Proposition I states that “the average cost of capital to any firm is completely independent of its capital structure and is equal the capitalization rate of
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Rogers Capital Structure When firm’s have a mixture of debt and equity it is called Capital Structure. A firm’s capital structure decision includes its choice of a target capital structure, the average maturity of its debt, and the specific types of financing it decides to use at any particular time. The value of a firm’s operations is the present value of its expected future free cash flow (FCF) discounted at its weighted average cost of capital (WACC). The WACC depends on
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the firm [chap. 1 & lecture] 2. valuation concepts and processes [chap. 3, 5, 8, 9, 29] 3. capital budgeting estimation and decision methods [chap.6, 7] 4. debt, equity and lease financing issues [chap. 14, 20, 21] 5. risk defined and measured in a CAPM setting [chap. 10, 11] 6. variations in the calculation of cost of capital [chap. 13, 18] 7. capital structure and dividend policy decisions [chap. 15, 16, 17, 19] Suggested Other Courses: FIN 644 concerns
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OF CAPITAL STRUCTURE Evidence from Commercial Banks in Ethiopia By K i b ro m M e h a ri F i s s e h a Reg.No.-CBE/PR0025/01 Research Project Submitted to the Department of Accounting and Finance, College of Business and Economics, Mekelle University, for the partial fulfillment of the degree of Master of Finance and Investment Under the Guidance of Aregawi Gebremichael (Ph.D. Candidate) Assistant Professor May, 2010 Mekelle, Ethiopia i THE DETERMINANTS OF CAPITAL STRUCTURE
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