fixed. Then we review capital structure issues related to the adverse investment selection problem of Myers-Majluf. Finally‚ we discuss the timing hypothesis of capital structure. Empirical studies do not consistently support one theory of capital structure under information asymmetry over the others. Thus‚ the review suggests that additional theoretical contributions are needed to help understand and explain findings in the empirical literature. Keywords: capital structure‚ asymmetric information
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used some debt. When you suggested this to your new boss‚ he encouraged you to pursue the idea. As a first step‚ assume that you obtained from the firm ’s investment banker the following estimated costs of debt for the firm at different capital structures: P e r c e n t F i n a n c e d w i t h D e b t ‚ w d r d 0% - 20
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Applications of option pricing in corporate finance Option pricing is used in four major areas of corporate finance: • Real Options Suppose a company has a 1-year proprietary license to develop a software application for use in a new generation of wireless cellular telephones. Hiring programmers and marketing consultants to complete the project will cost $30 million. The good news is that if consumers love the new cell phones‚ there will be a tremendous demand for the software. The bad news
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Finance 725 Spring 2006 J. E. Hodder Corporation Finance Course Schedule Tuesday‚ January 17: Introduction Thursday‚ January 19: Clarkson Lumber Company Reading: Note on Financial Analysis a. How is the company ’s financial performance? (Examine appropriate financial ratios.) b. Why has Clarkson Lumber borrowed increasing amounts despite its consistent profitability? c. How has Mr. Clarkson met the financing
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Blaine’s Case 1) Do you believe 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: Blain will use $209 million of cash from its balance sheet and $50 million in new debt bearing interest at the rate of 6.75% to repurchase 14.0 million shares at a price of 418
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choice of the dividend payment policy on the stock market changes ‚ the company ’s capital structure and corporate value will be affected‚ as well as the realization of shareholders ’ wealth. Dividend policy is closely related to the value of the company. The different branches of relevance dividend view are only from a certain angle to explain the dividend policy and stock price. However‚ in the imperfect capital market‚ there are various factors influence the company’s dividend policy and stock
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valuation using multiples 5. EMPIRE (Greg & Scott‚ Scotia Capital) Bidder price to acquire a publicly-traded company (Oshawa) DCF of stand-alone firm + synergies‚ valuation using multiples‚ bidding strategy + financing 2. WACC – CHOOSING WEIGHTS Since we are discount future FCFs‚ we want a forwardlooking WACC Hence we want to use forward-looking capital structure: 1. Use the company target capital structure – As stated by the management (case fact) – As from comparable
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Banking‚ University of Chittagong. Email: anupam@cu.ac.bd. * E-mail of the corresponding author: hasan14882@yahoo.com mail Abstract Financial plan is one of the vital decisions of a firm because a financial plan affects the market value‚ cost of capital and shareholders return of a firm. The Proportion of Debt to Equity in the financial plan of a firm is called leverage. Since optimal debt ratio influences a firm’s market value and shareholder’s return‚ different firms use different debt different
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Petroleum Note that p.2 of the case incorrectly states that the firm’s debt policy is that debt should comprise 50% of its total capital structure‚ defined as “long-term debt plus book equity.” The correct text should state “long-term debt plus market equity.” Answer the following questions: a. Does Pioneer estimate its overall corporate weighted-average cost of capital correctly? I think they´re WACC is correctly estimated. They use 50% debt and 50% equity‚ which I think is very risky. I would prefer
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Research Foundation. Mobley‚ M. E and H. Kuniansky. 1992. “Chief Financial Officers’ Views of Academics Versus Practitioners in the Field of Finance.” Financial Practice and Education‚ (Spring/Summer): 67-71. Pruitt‚ S. W. and L. J. Gitman. 1987. “Capital Budgeting Forecast Biases: Evidence from the Fortune 500.” Financial Managemat‚ (Spring): 46-51. Ramirez‚ G. G.‚ D.A. Waldman and D. J. Lasser. 1991. “Research Needs in Corporate Finance: Perspectives From Financial Managers.” Financial Management
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