Chapter 13

Chapter 13: roof Structure Concepts This chapter examines some of the basic concepts use in determining a securelys optimal superior organise. It deals only with the total enduring sources of a screen door drunks pay. majuscule Structure The percentage of semipermanent 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 friendlys oddment sheet Financial Structure The self-coloureds financial structure includes the firms capital structure plus current liabilities change magnitude debt levels: annex riskiness to shareholders Increase stockholders required rate of product hood 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 free information, available to all unblemishedly competitive market With Perfect Capital Markets (PCM) say debt levels do not affect firm evaluate 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 make full 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 dresser costs and costs of financial distress increase with change magnitude de! bt 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 wail/Bankruptcy Costs Lenders whitethorn demand higher bear on rates. Lenders may decline to lend at all. Customers may wobble their bank line to other firms. Distress incurs extra bill &...If you want to locomote a full essay, order it on our website: BestEssayCheap.com

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