FINANCE A MO RG A N S TA N L E Y P U B L I C AT I O N In This Issue: Capital Structure‚ Payout Policy‚ and the IPO Process The Capital Structure Puzzle: The Evidence Revisited 8 Michael Barclay and Clifford Smith‚ University of Rochester Do Managers Have Capital Structure Targets? Evidence from Corporate Spinoffs 18 Vikas Mehrotra‚ University of Alberta‚ and Wayne Mikkelson How To Choose a Capital Structure: Navigating the Debt-Equity Decision 26 and Megan Partch‚ University
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about the cost of capital? a. Leverage increases Beta for the firm since debt to equity ratio increases from unlevered beta. We use 10 year Treasury bond as our risk free rate and for market risk premium we use current prime lending rate for June 2007 minus10 year TRSY bond. Using these assumptions with increase in Debt‚ cost of equity increases for all the different capital structures. Interesting observation with cost of capital is that having debt in your capital structure decreases your WACC
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campus. Sales were $1‚100‚000 last year; variable costs were 60% of sales; and fixed costs were $40‚000. Therefore‚ EBIT totaled $400‚000. Because the university’s enrollment is capped‚ EBIT is expected to be constant over time. Because no expansion capital is required‚ CD pays out all earnings as dividends. Assets are $2 million‚ and 80‚000 shares are outstanding. The management group owns about 50% of the stock‚ which is traded in the over-the-counter market. CD currently has no debt—it is an allequity
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Case Study: Hill County Snack Food Co. 1.1 How much business risk does Hill County face? Hill County operates in a very competitive market where new potential entrants can be a threat to its operation either through lower price offering or lower production cost. Competition from peer companies has significant effect on its operation‚ because Hill County is price taker in the market‚ that is‚ increase in prices is not one of the choices it can implement. Also‚ due to the fact that its profitability
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Research Research Impact of Working Capital Management and Capital Structure on Profitability IMPACT OF WORKING CAPITAL MANAGEMENT AND CAPITAL STRUCTURE ON PROFITABILITY: THE CASE OF KSE QUOTED AUTOMOBILE FIRMS* H. Jamal Zubairi Finance and Accounting Department Mirza Aqeel Baig Economics Department College of Business Management‚ Karachi Abstract For any business concern the net profit or bottom line for a particular time period is the end result of its investing‚ financing and operating
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was avoided. However‚ the company’s cash position and conservative capital structure has a negative impact on its financial performance measure‚ which is indicated by a lower ROE and ROA rate. Also compared with other U.S companies in the industry‚ the zero-debt-capital structure is unusual. Therefore‚ Hill Country start to consider is it the time to change its capital structure‚ and if so‚ what is its optimal capital structure. Current operating strategy VS business risks and financial strategy:
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............................................................................. 6 PROBLEM STATEMENT ................................................................................................................................................ 8 STRUCTURE .............................................................................................................................................................. 9 DELIMITATIONS AND ASSUMPTIONS ......................................................
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risk. Capital Structure refers to the mix of sources from where the long term funds required in a business may be raised‚ i.e.‚ what should be the proportions of equity share capital‚ preference share capital‚ internal sources‚ debentures‚ and other sources of funds in the total amount of capital which an undertaking may raise for establishing its business. A bad financing decision may result in many forms of higher direct or indirect costs‚ such as lowering stock price‚ higher cost of capital and
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Assignment on An Appraisal on Dividend Policy and Capital Structure of Fu-Wang Ceramic Industry Ltd. Corporate Finance (FIN-507) Sec-01 Prepared For: Dr. Tanvir Ahmed Chowdhury Department of Business Administration East West University Prepared By: Md. Iftekharul Haque ID: 2009-3-95-052 Shazzad Hossain ID: 2010-2-95-155 Md. Yahyea ID: 2009-1-95-040 Rakesh Mondal ID: 2010-1-95-025 Hasanuzzaman Chowdhuri ID:2009-1-95-095 Submission Date: March 30
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Modigliani-Miller capital structure irrelevance propositions and the concept of debt tax shields. With the background of a pizza company‚ the case provides an engaging context to discuss the “pizza graphs” that are commonly used in corporate finance curriculum to illustrate the wealth effects of capital structure decisions. Objectives: * Introduce the Modigliani-Miller intuition of capital structure irrelevance; * Establish how the cost of equity is affected by capital structure decisions
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