THE JOURNAL OF FINANCE • VOL. LIII‚ NO. 4 • AUGUST 1998 Agency Costs‚ Risk Management‚ and Capital Structure HAYNE E. LELAND* ABSTRACT The joint determination of capital structure and investment risk is examined. Optimal capital structure ref lects both the tax advantages of debt less default costs ~Modigliani and Miller ~1958‚ 1963!!‚ and the agency costs resulting from asset substitution ~Jensen and Meckling ~1976!!. Agency costs restrict leverage and debt maturity and increase yield
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Du Pont Case Study Capital Structure Statement of the Problem Determine a capital structure policy suitable for Du Pont in the 1980s and beyond. This paper will consider the history of the company and the turbulent times of the 1960s and 1970s‚ weigh the advantages and disadvantages associated with higher and lower levels of debt‚ and develop a strategy for the future after the merger with Conoco Inc. in 1983. Executive Summary Du Pont has been historically known for its
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The Armstrong Production Company is an industry-leading firm in the field of manufacturing synthetic building materials for homes and commercial structures‚ based near St. Louis. Armstrong was fortunate in its initial stages to quickly secure inexpensive funding in the form of developmental loans issued by the State of Illinois‚ and thus was able to break even within three years of its founding in the early 1970s. Able to pour resources into its research and development segment‚ riding on the increasing
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percentage of net sales Equity ratio 5) Financial leverage 5) Balance Sheet and Cash Flow Data (€ in millions) Total assets 5) Inventories Receivables and other current assets Working capital5) Net cash (net borrowings) 5) Shareholders’ equity 5) Capital expenditure 4) Net cash provided by operating activities 4) Per Share of Common Stock (€) Basic earnings per share 2) Diluted earnings per share 2) Operating cash flow per share from continuing operations Dividend per share Share price at year-end
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MM with capital structure In 1958‚ Modigliani and Merton Miller in their classical paper “The Cost of Capital‚ Corporation Finance and the Theory of Investment”‚ talked something about capital structure as follow: Consider any company j and let Xj stand as before for the expected return on the assets owned by the company (that is‚ its expected profit before deduction of interest). Denote by Di the market value of the debts of the company; by Sj the market value of its common shares; and by V j
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CAPITAL STRUCTURE DETERMINANTS THE CASE OF THE KENYAN BANKING INDUSTRY TABLE OF CONTENTS 1. INTRODUCTION Capital structure refers to the mix of debt and equity which a firm uses to finance its operations. Many theories have been formulated with regard to whether there exists an optimal capital structure mix and the role the various determinants of capital structure play in deciding the mix. The Modern theory of capital structure began with Modigliani and Miller in 1958 (Harris
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are basically rooted in the Middle East Asia. Analyzing own strengths and weaknesses and capturing new opportunities or avoiding threats‚ are one of the most important factors for reaching this goal. This paper is dealing with the German apparel “Adidas”‚ which is one of the world’s largest manufacturers for sportswear and sport utilities. But why are they one of the leading global players in this certain industry? There are some key factors‚ which influenced their worldwide success. A part of different
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Managerial Finance – Problem Review Set – Capital Structure and Leverage 1) If a firm utilizes debt financing‚ an X% decline in earnings before interest and taxes (EBIT) will result in a decline in earnings per share that is larger than X. a. True b. False 2) Firm A has a higher degree of business risk than Firm B. Firm A can offset this by using less financial leverage. Therefore‚ the variability of both firms ’ expected EBITs could
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corporate capital structure Advanced Corporate Finance 4.1 5 + 6 September 2013 Corporate finance: (1) managing the balance sheet Cash + Liquid assets Accounts receivable Inventory Short t Sh t term liabilities li biliti - short term debt - accounts payable Long term liabilities LT assets - fixed - non-fixed - financial Equity 1 8/30/2013 Corporate Finance at different levels + (2) managing the cash flow needs • Long term finance (LT investments‚ capital structure) investments
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about the company adidas that belongs to the adidas Group. The adidas Group sells products under the brands adidas‚ Reebok and TaylorMade-adidas Golf. Adidas is on the market over 80 years and sells products for every kind of sports. The adidas group was founded in the year 1949 by Adolf Dassler. A company that started with selling soccer shoes contains today a wide product assortment with footwear‚ apparel and accessories. The brand is further divided into three subbrands called adidas performance‚ original
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