Chapter 12 Capital Structure and Leverage LEARNING OBJECTIVES After reading this chapter‚ students should be able to: • Explain why capital structure policy involves a trade-off between risk and return‚ and list the four primary factors that influence capital structure decisions. • Distinguish between a firm’s business risk and its financial risk. • Explain how operating leverage contributes to a firm’s business risk and conduct a breakeven analysis‚ complete with
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Question 5: Evaluate the Put-Warrant/Convertible Bond proposal. Does it solve Intel’s capital structure dilemma? What arguments might be made in favor of it? Intel’s capital structure dilemma was that it was holding too much cash on hand. Eventually‚ there were three available strategies or alternatives that Intel could undertake in terms of cash disbursement policies. First‚ it could continue or expand its market-repurchase program. Secondly‚ Intel could declare dividends to its shareholders
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I s there a way of dividing a company’s capital base between debt and equity that can be expected to maximize fi rm value? And‚ if so‚ what are the critical factors in determining the target leverage ratio for a given company? Although corporate fi nance has been taught in business schools for more than a century‚ the academic fi nance profession has found it diffi cult to come up with defi nitive answers to these questions. Part of the diffi culty stems from how the discipline has evolved
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TATA-AIG Life Insurance Company Ltd. India CGAP Working Group on Microinsurance Good and Bad Practices Case Study No. 14 James Roth and Vijay Athreye – September 2005 Good and Bad Practices in Microinsurance TATA-AIG‚ India Good and Bad Practices in Microinsurance This paper was commissioned by the “Good and Bad Practices in Microinsurance” project. Managed by the ILO’s Social Finance Programme for the CGAP Working Group on Microinsurance‚ this project is jointly funded by SIDA
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Investments and net current assets) of the Group increased to Rs.45‚383.10 crores as at March 31‚ 2010 from Rs.42‚267.17 crores as at March 31‚ 2009. The increase is attributable to capital expenditure for expansion and setup of new facilities and product development cost incurred by the Group. Net Fixed Assets including Capital Work-in-Progress increased to Rs.38‚506.33 crores as at March 31‚ 2010 as compared to Rs.35‚733.33 crores as at March 31‚ 2009. The gross fixed assets have increased by Rs.3‚917
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Kale et al (1991) suggests that the level of risk is one of the main determinants of a firm`s capital structure. By looking at the trade off theory we might expect a negative association when risk and leverage are concerned. If firms have high earnings volatility‚ for some obvious reasons‚ they would not want to indulge in debt financing. It follows that when firms are exposed to bankruptcy and agency costs greater is the incentive to reduce the level of debt otherwise the more volatile a firm`s
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Capital Structure and Profit Capital Structure Definition A unite of a company’s long-term debt‚ specific short-term debt‚ common equity and preferred equity. The capital structure is how a firm finances its overall operations and growth by using different sources of funds. Debt comes in the form of bond issues or long-term notes payable‚ whereas equity is classified as common stock‚ preferred stock or retained earnings. Also‚ Short-term debt such as working capital requirements is considered
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Capital Structure Practice Problems 1. Hayfin Enterprises has the following operating results and capital structure: Hayfin Enterprises ($000s) | | | Financial Data | | Revenue | $ 6‚000 | Operating Expenses | $ (4‚500) | EBIT (Operating Profit) | $ 1‚500 | | | Debt | $ 1‚200 | Equity | $ 8‚800 | Total Capital | $ 10‚000 | Interest rate on debt = 9% Share price = $25 (MV = BV) The firm is contemplating
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-Market Description - Target Consumer Description - Direct and Indirect Competition - Current Competitive Strategies - Market Shares - Available Distribution Structure - Key Environmental Factors Product Analysis Summary of External Factors Development Process Strategy - Target Market - Positioning - Timing Requirement - Marketing
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Tata Motors – India aquisation of Daewoo Commercial Vehicles Company- Korea The case examines the first-ever overseas acquisition by an Indian automobile company. It gives a details of the acquisition of Daewoo Commercial Vehicles plant by Tata Motors‚ world’s sixth largest commercial vehicle manufacturer. Daewoo Commercial Vehicles Company (DWCV) had an installed capacity of 20‚000 vehicles from a state-of-the-art plant built in 1995. Produced more than 90 truck models in the heavy commercial
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