2013-14 IMT-Nagpur Capital Structure: Introduction Mix of debt and equity use to finance its business Goal of CS Decision: to determine the financial leverage or CS that maximizes the value of company by minimizing WACC. Theory of Corporate Financing MM Theory of CS Irrelevance Trade-Off Theory Agency Theory Dr. Kulbir Singh (IMT-Nagpur) ADF 2013-14 Pecking Order Theory 2 Capital Structure: Introduction…… Theories are conditional‚ not general. No universal theory of CS Differ in their relative
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the Theory of Investment: Comment”‚ American Economic Review‚ June 1958‚ 48‚261-97] (hereafter MM) assumptions in related to cost of capital theory. Foundations This paper starts with creating unrealistic four foundations that can’t be found anywhere in the real market‚ but they are in need to backup the possibility of the main example in this paper‚ which illustrates MM’s assumptions about Propositions I‚ and the assumptions are: 1. Arbitrage is possible between securities in an equivalent return
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Lecture 1: The advantages of forming a corporation are: * Reduction of personal liability. A sole proprietor has unlimited liability * Taxes. Forming a corporation may mean that more expenses can be considered business expenses and be deducted from the company’s income. * Improved credibility. The business may have increased credibility in the business world compared to a sole proprietorship. * Ability to attract investment. Corporations can raise capital through the sale of equity
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MM Propositions:In a world with no taxes‚ no transaction costs‚ and no costs of financial distress‚ is the following statement true‚ false‚ or uncertain? Moderate borrowing will not increase the required return on a firm’s equity. Explain. MM Proposition II states that higher debt does not affect cost of capital of a firm. The reason is that the lower cost of debt is offset by a greater cost of equity‚ which means investors demand a higher return on equity as a result of the higher risk coming
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dividends distributed to shareholders is equal or greater than the free cash flow generated by the fixed investment policy. They claim that‚ if retention is allowed‚ dividend policy is not irrelevant. This paper shows that the dividend irrelevance proposition holds even in case of retention. The key assumption has not to do with retention but with the NPV of the extra funds (either retained or raised): if NPV is zero‚ dividend irrelevance applies. Yet‚ the dichotomy retention/no-retention is useful‚
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concept to a firm. The founderstone of this theory is the Modigliani –Miller theory (MM). MM was developed by two economists‚ Franco Modigliani‚ a professor at Massachusetts Institute of Technology‚ and Merton Miller‚ a professor at University of Chicago Graduate School of Business. By this main contribution‚ Modigliani won the Nobel Prize in Economics in 1985 and Miller won the Nobel Prize in Economics in 1990. MM postulate in his interview that “we should not try to make our shareholders wealthy
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MBA- SEMESTER-II ASSIGNMENT – MB0045 Name : Registration No : Learning Center : Learning Center Code : Course : MBA Subject : FINANCIAL MANAGEMENT Semester : Second Module No : MB0045 Date of Submission : 30.01.2013 Marks Awarded : Directorate of Distance Education Signature of Sikkim Manipal University Signature of Evaluator II-Floor‚ Syndicate House Center Cordinator
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IIML‚ Noida‚ WMP‚ Term-3 | Group-6 | MM-1 1 Contents • • • • About Hilti Product Categories • TE 1000-AVR breaker SWOT Analysis of the product Pricing • • Competition • New product launches by Hilti (TE 1500) Final analysis • Cost Analysis & Cost comparison • Value Proposition w.r.t. Positioning • Challenges with the existing market • Major concerns/challenges we need to address Feedback • www.hilti.com IIML‚ Noida‚ WMP‚ Term-3 | Group-6 | MM-1 2 About Hilti • Headquartered
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higher variability of EPS with debt than all equity. C) increased use of homemade leverage. D) equivalence value between levered and unlevered firms in the presence of taxes. E) only two of the above. 4. A key assumption of MMs Proposition I (no taxes) is: A) that financial leverage increases risk. B) that individuals can borrow on their own account at rates less than the firm. C) that individuals must be able to borrow on their own account at rates equal to the firm.
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Project finance Aditya Agarwal Sandeep Kaul Fuqua School of Business Contents The MM Proposition What is a Project? What is Project Finance? Project Structure Financing choices Real World Cases Project Finance: Valuation Issues The MM Proposition The MM Proposition “The Capital Structure is irrelevant as long as the firm’s investment decisions are taken as given” Then why do corporations: Set up independent companies to undertake mega projects and
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