CHAPTER 16 FINANCIAL LEVERAGE AND CAPITAL STRUCTURE POLICY Answers to Concepts Review and Critical Thinking Questions 1. Business risk is the equity risk arising from the nature of the firm’s operating activity‚ and is directly related to the systematic risk of the firm’s assets. Financial risk is the equity risk that is due entirely to the firm’s chosen capital structure. As financial leverage‚ or the use of debt financing‚ increases‚ so does financial risk and‚ hence‚ the overall
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CHAPTER 13 CAPITAL STRUCTURE AND LEVERAGE (Difficulty: E = Easy‚ M = Medium‚ and T = Tough) Multiple Choice: Conceptual Easy: Business risk Answer: c Diff: E [i]. A decrease in the debt ratio will generally have no effect on . a. Financial risk. b. Total risk. c. Business risk. d. Market risk. e. None of the above is correct. (It will affect each type of risk above.) Business risk Answer: d Diff: E [ii]. Business risk
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development of new technologies can bring new competitors to this market. Verizon is exposed to many types of market risk such as interest rate and foreign exchange rate which has an effect on Verizon’s earnings. Below figure 5 summarizes the capital structure of Verizon; it is obvious that company is increasingly depending on debt to finance its overall operations. This approach can be attributed to its deal with Vodafone to obtain the 45% stake in Verizon’s using the low interest rate offer to fund
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INTRODUCTION 1.0 CHAPTER OVERVIEW Capital plays an important role in business. Every business enterprise‚ whether big‚ medium or small‚ manufacturing‚ services or industrial‚ needs capital to carry on its operations smoothly and to achieve its targets organization’s objective. Capital Structure means how an organization or company manage their capital or obtain financial resources to manage their business well. Business adopts different types of capital structures in order to meet the internal needs
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------------------------------------------------- Chapter 15 Capital Structure Decisions ------------------------------------------------- ANSWERS TO END-OF-CHAPTER QUESTIONS 15-1 a. Capital structure is the manner in which a firm’s assets are financed; that is‚ the right-hand side of the balance sheet. Capital structure is normally expressed as the percentage of each type of capital used by the firm--debt‚ preferred stock‚ and common equity. Business risk is the risk
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Dissertation AN EMPIRICAL STUDY ON IMPACT OF DIVIDEND POLICY ON CAPITAL STRUCTURE (A report submitted towards the partial fulfillment of the requirement of the two years full-time Post Graduate Diploma in Management.) DECLARATION I‚ student of Post Graduate Diploma in Management from hereby declare that I have completed dissertation on “IMPACT OF DIVIDEND POLICY ON CAPITAL STRUCTURE ” a part of the course requirement. I further declare that the information presented in this project
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Capital structure decisions: To M&M and beyond Introduction Modigliani and Miller’s proposition one states that by introducing debt financing does not change the value of the firm or the value of the firm’s cash-‐flows but only the way that these cash-‐flows of the firm are split between its debt and
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Basic Accounting Concepts and Business Structures Shannon Goshert ACC 537 July 25‚ 2010 Angela Rose Abstract Basic accounting concepts and business structures go hand-in-hand. Usually the business structure will determine the type of accounting concepts it will use. Generally accepted accounting principles (GAAP) are needed for effective accounting information. Basic Accounting Concepts and Business Structures Basic accounting concepts and business structures are important to a business’s
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Working Capital Management Concepts Worksheet Concept Application of Concept in the Simulation Reference to Concept in Reading Credit policy Lawrence Sports ’ (LA) current credit policy is not catering to the needs of the company. LA ’s credit policy is too lenient‚ and there is no money coming into the company. The company ’s working capital minimum requirements are not being achieved. In addition‚ it has a direct effect on the LA ’s cash conversion cycle because cash is constantly paid for
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at 11.3% to $2.16 per share‚ return of $15.6 to shareholders through share buybacks and strong dividends. About 43.8% of the total capital of the company comes from debt and the remaining comes from equity. The cost of the different components of its capital structure are – debt: 2.92% (after-tax cost)‚ and equity: 9.49%. The WACC is 6.61%‚ based on the capital structure outlined. The effective tax rate is 35.4%. AT&T has had dividend growth for the last 25 years. The dividend growth this year was
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