to analyze firm performance‚ value financial assets‚ determine the cost of capital‚ evaluate capital structure and dividend policies‚ and know the basics of raising capital in order to make informed investment and financing decisions. Topic areas will include financial performance measurement‚ valuation‚ capital budgeting‚ capital market theory‚ basics of investments‚ cost of capital‚ raising capital‚ and capital structure and dividends. Instructor: Daniel McConaughy Office: JH4103 Office Hours:
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out of 3 points The optimal distribution policy strikes that balance between current dividends and capital gains that maximizes the firm’s stock price. Correct Answer: True Question 2 3 out of 3 points The dividend irrelevance theory‚ proposed by Miller and Modigliani‚ says that provided a firm pays at least some dividends‚ how much it pays does not affect either its cost of capital or its stock price. Correct Answer: False Question 3 3 out of 3 points MM’s dividend irrelevance
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MODULE II Capital structure-theories of capital structure – MM model‚ incentive issues and agency cost; financial signaling; Capitalization-under capitalization –over capitalization-capital gearing Leverage – operating leverage-financial leverage Cost –volume- profit analysis PREPARED BY MRS. REKHA VENUGOPAL Capital structure In order to run and manage a company funds are needed. Right from the promotional stage
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Contents 1.0 Introduction 1 2.0 Executive Summary 1 3.0 Capital Structure 2 3.1 Types of Funding Utilised by Billabong 3 3.2 Recent trend in the level of leverage 3 3.3 Capital expenditure and financing: 5 3.4 Capital Structure of Similar Firms 6 3.5 Company Characteristics and Leverage policy 7 3.5.1 Taxes 8 3.5.2 Trade off Model 8 3.5.3 Pecking Order of Financing Choices 9 3.5.4 Signalling Theory 9 3.6 Optimal Capital Structure 10 4.0 Dividend Policy 10 4.1 Billabong dividend history
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Learning Outcomes Outcome Expectation 1. Students can calculate the value of fixed income securities Students can compute bond prices for use in unstructured case analysis. Applications include cost of capital computations for a corporation with a variety of divisions‚ optimal capital structure‚ leveraged buyouts‚ etc. 2. Students can calculate the value of equity securities Students can propose an appropriate value for equity in unstructured case analysis. Student can prepare a report detailing
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obligation that bids a borrower to specific actions or outcomes as a condition for extending a loan) that read as follows: “The company must maintain net working capital (defined for purposes of this loan as accounts receivable plus inventories minus accounts payable) of at least $4 million. For purposes of this covenant‚ net working capital will be measured at the end of each fiscal year.” Is TCI likely to be able to satisfy this covenant in both 1996 and 1997? 6. As a lender‚ would you be willing
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of its three basic sources of capital—long-term debt‚ preferred stock‚ and common stock equity—for various ranges of new financing. Source of Capital Range of New Financing After Tax Cost Long-term debt $0 to 320‚000 6% $320‚000 and above 8% Preferred stock $0 and above 17% Common stock equity $0 to $200‚000 20% $200‚000 and above 24% The company’s capital structure weights used in calculating its weighted average cost of capital are shown in the following table
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Blaine Kitchenware Questions: 1) Do you believe that 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: Blaine will use $209 million of cash from its balance sheet and $50 million in new debt bearing an interest rate of 6.75% to repurchase 14 million shares
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operations are primarily in America and Canada‚ but it has also made expansions in Australia and Chile regarding investments in gold exploration. New Earths balance sheet presents a large amount of cash‚ will further analysis showing a simple debt structure‚ and a reasonable leverage ratio with no risk of liquidity. New Earth has a strong financial position shown in basic accounting concepts which leads to the conclusion that New Earth has been very successful. New Earth wants to diversify into base
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Optimal Capital Structure According to Miller and Modigliani’s (1958) first proposition‚ the value of a firm is independent of its capital structure‚ assuming no corporate taxes. It was later demonstrated that the existence of debt in the capital structure creates a debt shield that increases the value of the firm by the present value of the tax shield (Miller & Modigliani‚ 1963). This line of reasoning implies that debt financing adds significant value to the firm and an optimal capital structure
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