CHAPTER 16 FINANCIAL LEVERAGE AND CAPITAL STRUCTURE POLICY Answers to Concepts Review and Critical Thinking Questions 1. 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 financing‚ increases‚ so does financial risk and‚ hence‚ the overall
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Hand-out 3: Market Concentration Specification Market concentration. Definition “’Market concentration’ is the degree to which the output of an industry is dominated by its largest producers.” In other words‚ how many of the sales in the market are accounted for by the biggest firms in that market. Firm Sales (£m) % Market Share A 56 B 43 C 22 D 12 E 3 F 1 Total 100% Calculate the 3 firm concentration ratio of this market. 3 firm concentration ratio = __________________________________________________________
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RESULTS AND DISCUSSION Now that we have applied all the tools necessary for hypothesis testing‚ the final results can be discussed in detail. All variables with respect to their relation to the capital structure will be discussed separately. Not only the figures have been interpreted as per the mathematical rules‚ but they have also been analyzed according to the prevalent conditions in the cement industry during the period of analysis. Therefore‚ it is necessary to give the industry scenario
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Transaction Exposure (Note 11; Ch 8) 1. Transaction Exposure 2. Hedging Foreign exchange exposure is a measure of the potential for a firm’s profitability‚ net cash flow‚ and market value to change because of a change in exchange rates These three components (profits‚ cash flow and market value) are the key financial elements of how we evaluate the relative success or failure of a firm 1. Transaction Exposure: measures changes in the value of outstanding financial obligations
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1. What is the expected value of the company in one year‚ with and without expansion? Would the company’s stockholders be better off with or without expansion? Why? (Ross‚ Westerfield‚ Jaffe‚ & Jordan‚ 2011) Without Expansion | 0.3 * 11‚000‚000 | = 3‚300‚000 | 0.5 * 17‚500‚000 | = 8‚750‚000 | 0.2 * 22‚500‚000 | = 4‚500‚000 | Total | 16‚550‚000 | With Expansion | 0.3 * 13.000‚000 | =39‚000‚000 | 0.5 * 24‚000‚000 | =12‚000‚000 | 0.2 * 28‚500‚000 | =5‚700‚000 | Total
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Assignment 2: Business Financing and the Capital Structure Principles of Finance Finance 100 December 12‚ 2013 Business Financing and the Capital Structure Raising Business Capital As a financial advisor to this business there are two options to consider for raising business capital‚ equity financing and debt financing. The details‚ advantages‚ and disadvantages of both options will be provided. Also information about raising capital by selecting an investment banker
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rP os t 9-201-082 REV: MARCH 4‚ 2002 op yo The Loewen Group‚ Inc. (Abridged) In March 1999‚ John Lacey and the management team at the Loewen Group‚ Inc.‚ had to decide what course of action to take in light of the company’s imminent financial difficulties. On January 22‚ 1999‚ Lacey‚ a renowned turnaround specialist‚ was appointed chairman of Loewen‚ the second largest death care company in North America. Headquartered in Burnaby‚ British Columbia‚ Loewen owned over 1‚100 funeral
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Department of Management Sciences (PUMBA) Course Structure of Proposed ‘Executive MBA Programme’ (AY 2013-14) Second Year – Semester III Course Code301302303304305306Total Course TitleBusiness Policy & Strategic ManagementAdvanced Financial ManagementFunctional Elective – IFunctional Elective – IIFunctional Elective - IIIIndividual Research Project600 MarksInternalExternal505050505050505050505050 Functional Electives Marketing (Group A) Elective I (303-A) – Product & Brand Management Elective
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15-1 CHAPTER 15 Capital Structure: Basic Concepts Multiple Choice Questions: I. DEFINITIONS HOMEMADE LEVERAGE a 1. The use of personal borrowing to change the overall amount of financial leverage to which an individual is exposed is called: a. homemade leverage. b. dividend recapture. c. the weighted average cost of capital. d. private debt placement. e. personal offset. Difficulty level: Easy MM PROPOSITION I b 2. The proposition
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Advantages / Disadvantages of the IPO Decision There are considerable advantages with obtaining equity through the IPO process. There are‚ however‚ some drawbacks that also need to be taken into consideration. Some of the advantages and disadvantages are: Advantages | Disadvantages | * Equity value is established for the firm * Current shareholders can diversify personal portfolios | * SEC requires public disclosure of financial information (transparency) * IPO expenses | * Liquidity
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