high‚ relative to book and past market values‚ and to repurchase equity when their market values are low. We document that the resulting effects on capital structure are very persistent. As a consequence‚ current capital structure is strongly related to historical market values. The results suggest the theory that capital structure is the cumulative outcome of past attempts to time the equity market. Introduction “Equity market timing” refers to the practice of issuing shares at
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debt to total capital approaching 70%‚ as opposed to a target ratio of 60%. While some investors welcome HCA’s more aggressive use of leverage‚ others are worried that HCA’s capital structure could decrease the company’s current A bond rating. As a result of increased debt‚ a decline in HCA’s first-quarter earnings per share could occur. The company faces the problem of deciding what should be done to its capital structure and whether reducing the ratio of debt to total capital to match the target
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THE JOURNAL OF FINANCE • VOL. LIII‚ NO. 4 • AUGUST 1998 Agency Costs‚ Risk Management‚ and Capital Structure HAYNE E. LELAND* ABSTRACT The joint determination of capital structure and investment risk is examined. Optimal capital structure ref lects both the tax advantages of debt less default costs ~Modigliani and Miller ~1958‚ 1963!!‚ and the agency costs resulting from asset substitution ~Jensen and Meckling ~1976!!. Agency costs restrict leverage and debt maturity and increase yield
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Du Pont Case Study Capital Structure Statement of the Problem Determine a capital structure policy suitable for Du Pont in the 1980s and beyond. This paper will consider the history of the company and the turbulent times of the 1960s and 1970s‚ weigh the advantages and disadvantages associated with higher and lower levels of debt‚ and develop a strategy for the future after the merger with Conoco Inc. in 1983. Executive Summary Du Pont has been historically known for its
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September 1993-January 1997 Van Salesman A.G.E. INTERNATIONAL- Procter & Gamble Distributor West
Free Manila Metro Manila Philippines
The Armstrong Production Company is an industry-leading firm in the field of manufacturing synthetic building materials for homes and commercial structures‚ based near St. Louis. Armstrong was fortunate in its initial stages to quickly secure inexpensive funding in the form of developmental loans issued by the State of Illinois‚ and thus was able to break even within three years of its founding in the early 1970s. Able to pour resources into its research and development segment‚ riding on the increasing
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MM with capital structure In 1958‚ Modigliani and Merton Miller in their classical paper “The Cost of Capital‚ Corporation Finance and the Theory of Investment”‚ talked something about capital structure as follow: Consider any company j and let Xj stand as before for the expected return on the assets owned by the company (that is‚ its expected profit before deduction of interest). Denote by Di the market value of the debts of the company; by Sj the market value of its common shares; and by V j
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CAPITAL STRUCTURE DETERMINANTS THE CASE OF THE KENYAN BANKING INDUSTRY TABLE OF CONTENTS 1. INTRODUCTION Capital structure refers to the mix of debt and equity which a firm uses to finance its operations. Many theories have been formulated with regard to whether there exists an optimal capital structure mix and the role the various determinants of capital structure play in deciding the mix. The Modern theory of capital structure began with Modigliani and Miller in 1958 (Harris
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Managerial Finance – Problem Review Set – Capital Structure and Leverage 1) If a firm utilizes debt financing‚ an X% decline in earnings before interest and taxes (EBIT) will result in a decline in earnings per share that is larger than X. a. True b. False 2) Firm A has a higher degree of business risk than Firm B. Firm A can offset this by using less financial leverage. Therefore‚ the variability of both firms ’ expected EBITs could
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corporate capital structure Advanced Corporate Finance 4.1 5 + 6 September 2013 Corporate finance: (1) managing the balance sheet Cash + Liquid assets Accounts receivable Inventory Short t Sh t term liabilities li biliti - short term debt - accounts payable Long term liabilities LT assets - fixed - non-fixed - financial Equity 1 8/30/2013 Corporate Finance at different levels + (2) managing the cash flow needs • Long term finance (LT investments‚ capital structure) investments
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