effects of convertible debt and straight debt on CEO pay$ Hernan Ortiz-Molinaà Sauder School of Business‚ The University of British Columbia‚ 2053 Main Mall‚ Vancouver‚ BC‚ Canada V6T 1Z2 Received 4 April 2005; received in revised form 22 September 2006; accepted 28 September 2006 Available online 16 November 2006 Abstract I examine how CEO compensation is related to firms’ capital structures. My tests address the simultaneity of these decisions and distinguish between debt types with different
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stating that “a corporation’s primary mission is to make money for its stockholders and maximize profits by minimizing costs.” In line with the corporate culture‚ AHP capital structure was very conservative. With total debt of $13.9 million against Firm Value of 4.6 billion‚ debt to value ratio is negligible. AHP may be following the pecking order theory‚ meeting all investment needs with internally generated funds. One can however question whether or not AHP is indeed minimizing their costs since
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shares are collateralized as its holding companies’ debts. These debts were secured by 77.3 million shares in total‚ accounting for 75.9% shares of Marvel as a whole. Issue Company Marvel Holding Inc. Marvel Parents Holding Inc. Marvel III Holding Inc. Amount ($ Million) 517.4 251.7 125 Due 1998 1998 1998 Secured by 48.0 million Marvel shares 20.0 million Marvel shares 9.3 million Marvel shares Table 1. The Debt Financing of Marvel and its holding companies Though
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premium is assumed 7% (or 5%)‚ and uses Wrigley’s current beta of 0.75 (case Exhibit 5). 4. WACC after recapitalization The increase in leverage will affect Wrigley’s WACC in at least three ways: 1. Cost of debt: Wrigley’s debt rating will change from AAA (consistent with no debt) to a BB/B rating reflecting the higher risk. The postrecapitalization credit rating is a matter of judgment. It is highly instructive to guide students through a rating exercise for Wrigley’s pro forma recapitalization
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accounting quality on investment efficiency across countries. They find that accounting quality influences investment efficiency in the United States‚ but not in Japan. They suggest that one potential explanation for this cross-country difference is the mix of debt and equity in the capital structures of U.S. versus Japanese firms. We extend this research by examining how different sources of financing affect the importance of accounting quality on firms’ investment–cash flow sensitivity. Directly testing how different
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dividends. Levered’s perpetual debt has a market value of $300 million and the required return on its debt is 7%. Levered’s stock sells for $100 per share‚ and there are 5 million shares outstanding. Unlevered has 8 million shares outstanding worth $90 each. Unlevered has no debt. These firms operate in the Modigliani-Miller world with no taxes. How can you take advantage of this scenario? Question 3. Northrop has 80 million shares worth $10 per share and no debt. Its cost of capital is 5%. It
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1 Safeerullah MBA-III Cell: 0301-8183254 Corporate Finance MBA-III ___________________________________________________ Introduction to Corporate Finance Finance: Finance is an art and science of managing money. It is concerned with resource allocation as well as resource management and investment. Simply finance deals with matters related to money and the markets. Functions of corporate finance: • Planning and analyzing • Acquiring • Utilization of funds All the above functions are performed
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billion. This growth through acquisitions was funded primarily through debt which was evident as long term debt increased $922.8 million from 1994 to 1998; this was a 195.88% increase. One benefit of debt financing was that it provided a tax benefit. From 1994 to 1998 Loewen had paid $488.6 million in interest. Loewen’s tax rate was 45% therefore; debt financing resulted in a tax savings of $219.87 million. Another advantage of debt financing was that it did not afford the lender ownership. Therefore
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year 1981 the company presents outstanding debts for 2.5 bln US$. The short term debt accounts for 43% of the total amount (1.075 bln US$). In 1980 the D/E ratio is 214%‚ which is relevantly above the average level of the competitors. It is thus evident that our position as lenders results particularly risky since the company won’t be able to repay the debt due by the 1st November. Indeed‚ the growth of the company was massively financed by short term debt‚ whose impact in terms of the interest
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financial information provided for Adelphia Communications Corporation for the years 1992-1996. We have also evaluated the Company’s position and strategy within the industry‚ standard industry practices‚ and evaluated the Company’s ability to repay debt. We have concluded that the Company should be considered high-risk; however the decision of whether to grant loans to the Company should be based on the creditor’s acceptable level of risk. Loan terms commensurate with assessed risk have been provided
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