The optimal capital structure Is there such a thing? Is there an Optimal Capital Structure? • Miller and Modigliani: • 1. You cannot derive value from financing strategies. If you finance with debt in a world with taxes‚ then you might add value from interest payments tax shields • Question: • If this is true for everyone‚ then why do not find more debt financing in more companies‚ i.e you find little debt in technological companies Myers and the Pecking Order • Prof. Myers found the following
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no costs of financial distress or bankruptcy‚ what percentage of the firm’s capital structure would be financed by debt? 3 Exercise 3 The Holland Company expects perpetual EBIT of $4 mil. per year; the firm’s after-tax‚ all-equity discount rate (r0) is 15%; company is subject to the tax rate of 35%; the pre-tax cost of the firm’s debt capital is 10% p.a.‚ and the firm has $10 mil. of debt in its capital structure. What is Holland’s value? What is Holland’s cost of equity (re)? What
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Financial Management Literature Review on Capital Structure Date: 7\12\2012 Name: Tudor Gheorghiu Student Id: 12254888 Introduction 3 Theories on Capital Structure 3 Modigliani and Miller theory on capital structure 3 Other theories relating to the firm`s capital structure 4 Trade-off theory 4 Pecking order theory 5 Agency theory 6 Choosing between theories 7 Empirical evidence 7 Developed countries: 7 Emerging markets: 9 Capital structure of privatised firms 10 Factors affecting
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“DETERMINANTS OF CAPITAL STRUCTURE IN PAKISTAN” Capital structure refers to the combination of asset financing from different available sources. Normally the companies have two choices‚ either to finance the assets from internal source that is termed as retained earnings or from external source that splits into debt and equity. A firm’s capital structure is than the composition of its liabilities. In reality‚ capital structure of firms may be highly complex and consist of number of sources. These
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case study will focus on the proposed capital structure decisions of Diageo. 2) Is Diageo’s current capital structure appropriate to its new business? It believes that it has traditionally had a conservative debt policy. If so‚ is that policy still appropriate? Has Diageo’s capital structure been as conservative as it believes? (What interest rate coverage ratio has it been targeting? How does it look relative to its competitors?) Diageo’s capital structure has not been as conservative as it
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Solution 1: (i) P0 = D1 Ke - g CA – IPC TEST CAPITAL STRUCTURE = 3.50 (1.06) 0.15 – 0.06 = `41.22 (ii) Ke = D1 + g P0 0.15 = 3.50 (1 + g) + g 50 7.50 = 3.50 + 3.50g + 50g g= 4 = 7.48% 53.5 Solution 2: (i) Determination of EPS at EBIT level of `22‚00‚000 Financing Plan (a) (b) Equity Shares (`) Debentures (`) Pref. EBIT 22‚00‚000 22‚00‚000 Less: Interest (16‚000) (1‚21‚000) Taxable Income 21‚84‚000 20‚79‚000 Less: Tax @ 30% (6‚55‚200) (6‚23‚700) EAT 15‚28‚800 14‚55‚300 Less: Dividend on Pref
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Communication Structure for an Organization Paul Cody COM425: Communication in Organizations Prof. Demetra Blacknell September 10‚ 2012 ? Human communication is the lifeblood of any organization. The interactive social process of communication is what enables organizational participants to elicit cooperation from others (Kreps‚ 2011). There are several different concepts that are important to an organizations communication structure. The concepts to be discussed in this paper are active
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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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duration and the frequency of the pathways to user conversions. In this paper‚ we propose an alternative data mining framework for analyzing user-level advertising data. In the aggregation step‚ we compress individual user histories into a graph structure‚ called the adgraph‚ representing local correlations between ad events. For the reporting step‚ we introduce several scoring rules‚ called the adfactors (AF)‚ that can capture global role of ads and ad paths in the adgraph‚ in particular‚ the structural
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common stock 5 years warrant attached. What have been MCI sources of funds in the past (1972-1983)? What’s your opinion? Around 1972 MCI issued equity and later on time when the company started going well they issued debentures and convertible debentures. The main raison to do that is because equity cost use to be higher. First of all they issued debentures but they realise that the convertible debentures had lower cost of capital and they started issuing them. Due to the high growth of the
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