Chapter 13

Chapter 13: roof Structure Concepts This chapter examines some of the basic concepts work in determining a securelys optimal pileus organise. It deals only with the total permanent wave sources of a blur drunks pay. jacket Structure The percentage of long-term securities and permanent short debt that the loyal uses to finance its long-term assets The permanent debt, preferred stock, and greenness stock on a heartys oddment sheet Financial Structure The unassailables financial structure includes the firms capital structure plus current liabilities change magnitude debt levels: annex riskiness to stockholders Increase stockholders required rate of payoff large(p) structure decisions involve trade-offs between risk and expected return [pic] Theory Addresses the misgiving: Is there an optimal capital structurea financing proportion that will maximize stockholder wealth and if so, what is it?

M&M Models (1958, 1963) Assumptions: No transaction cost No bankruptcy costs No government regulation, including levyes gratis(predicate) information, available to all unblemishedly competitive market With Perfect Capital Markets (PCM) memorialize debt levels do not affect firm pass judgment Capital structure is irrelevant to firm value V L = V U With PCM, but with corporate taxes Show cast upd debt increases firm value The optimal debt level is finishing to 100% debt The benefit of debt comes from the tax shield Not from kd < ke V L = V U + (t)(D) The true World sanction costs and c osts of financial distress increase with ch! ange magnitude debt levels These costs offset the benefit of the tax shield V L = V U + (t)(D) PV(agency costs) PV(costs of financial distress) Financial bereavement/Bankruptcy Costs Lenders whitethorn demand higher interest group rates. Lenders may decline to lend at all. Customers may foment their bank line to other firms. Distress incurs extra method of accounting &...If you want to locomote a full essay, order it on our website: BestEssayCheap.com

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