Capital Structure Decisions: Which Factors are Reliably Important? Murray Z. Frank1 and Vidhan K. Goyal2 First draft: March 14‚ 2003. Current draft: December 20‚ 2003. ABSTRACT This paper examines the relative importance of 38 factors in the leverage decisions of publicly traded U.S. firms from 1950 to 2000. The most reliable factors are median industry leverage (+ effect on leverage)‚ market-to-book ratio (-)‚ collateral (+)‚ bankruptcy risk as measured by Altman’s Z-Score (-)‚ dividend-paying
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CAPITAL BUDGETING DECISION Clark Paints To look into possible ways to trim total poduction costs. Make or purchase paint cans? Cost of new equipment Disposal value Life production - number of cans Annual production or purchase needs - number of cans Project life $ $ 200‚000 40‚000 5‚500‚000 1‚100‚000 5 years Number of workers needed Annual work-hours per employee Earnings per hour for employees Other annual benefits per employee - % of wages Annual health benefits per
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CAPITAL STRUCTURE DECISIONS When a firm is seeking financing for a project it is usually a choice between additional debt financing or an additional equity issue‚ assuming internally generated funds are not sufficient. The chosen option of financing can make a difference to EPS (earnings per share )‚ which is an important investment analyst ratio. Example : Assume Cherokee Tire Co’s long term capitalization of $18 mill is as follows : Debt $5 mill @ 9 per cent.
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The importance of capital budgeting cannot be exaggerated. Some of the reasons for this importance are mentioned below: • Capital budgeting involves a greater amount of risk on account of unforeseen situations. Capital is generally invested with the expectation of future benefits which are likely to accrue over a long period of time. Therefore‚ a right decision has to be taken to ensure a favorable impact on the profitability and competitive position of the firm. • Capital budgeting decisions
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Importance of Human Capital Human capital is the collective value of the capabilities‚ knowledge‚ skills‚ life experiences‚ and motivation of an organization’s workforce. It is also known as intellectual capital which is the knowledge‚ creativity‚ and decision making that people contribute in an organization (Zinni et al‚ 2011). Many companies focus far too much on measuring return on invested capital (ROIC) rather than measuring the contributions made by their talented employees (Bryan‚ 2007)
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Valuing Capital Investment Projects 1. Growth Enterprises‚ Inc. (GEI) has $40 million that it can invest in any or all of the four capital investment projects‚ which have cash flows as shown in Table 1 below. Table 1 Comparison of Project Cash Flows* ($ thousands) Year of Cash Flow Project A. B. C. D. Type of Cash Flow Year 0 Investment Revenue Operating expenses ($10‚000) Investment Revenue Operating expenses ($10‚000) Investment Revenue Operating expenses ($10‚000) Investment Revenue
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Portfolio Management and Investment Decision INTRODUCTION ‚ IMPORTANCE & NEED OF STUDY Portfolio management or investment helps investors in effective and efficient management of their investment to achieve this goal. The rapid growth of capital markets in India has opened up new investment avenues for investors.The stock markets have become attractive investment options for the common man.But the need is to be able to effectively and efficiently manage investments in order to keep maximum returns
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Capital budgeting (or investment appraisal) is the planning process used to determine a firm’s expenditures on assets whose cash flows are expected to extend beyond one year such as new machinery‚ equipments‚ etc. It is also the process of identifying‚ analyzing and selecting investment projects whose cash flows are expected to extend beyond one year such as research and development project. Capital expenditures can be very large and have a significant impact on the firm’s financial
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Long-Term Investment Decisions (Course title) (Date) Introduction Long term capital decisions involve choosing how to finance long term projects. For a movie rental company‚ such decisions would include opening new shops in new markets or buying new machinery that would improve the firm’s technology. Before making such decisions‚ a firm has to do an analysis of the returns that the new project would bring against the cost outlay of the project. There are several ways of doing such an analysis
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Risk Analysis on Investment Decision Net present value‚ internal rate of return‚ and profitability index are measures used to compare two mutually exclusive capital investment proposals. "SAI wants to increase market share and keep up with technology‚ which can be done by either expanding their existing Digital Imaging market share or by entering the Wireless Communication market‚" (UoP‚ 2007). Both alternatives have areas of opportunity as well as potential risks that the company will have to
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