Case 10 Aspeon Sparkling Water‚ Inc. Capital Structure Policy CASE INFORMATION Purpose This case‚ which in all aspects is identical to Case 9‚ illustrates the capital structure decision for a firm that starts with zero debt. Either Case 9 or Case 10‚ but not both‚ should be assigned. The primary analytical tool is valuation analysis‚ although the case briefly introduces the Modigliani and Miller (MM) with corporate taxes and Miller models. The case also illustrates financial
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1. Why should a firm have a capital structure policy‚ i.e. a target debt ratio? A capital structure policy aims to balance the trade-off between the benefits of debt financing (interest tax shield) and the costs of debt financing (financial distress and agency costs). Every firm should set its target capital structure such that its cost and benefits of leverage ultimately maximise the firm’s value. Graham and Harvey asked 392 firms’ chief financial officers whether they use target debt ratios. Results
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of capital for a firm. The student determines the cost of individual sources of financing‚ including long-term debt‚ preferred stock‚ and common stock. The cost of debt is adjusted for Eco Plastics’ 40% tax bracket. The company is considering a new financial structure‚ with the replacement of preferred stock financing with debt financing. Additional use of debt increases the common stockholders’ required rate of return. The student is asked to compare the two weighted average costs of capital and
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2015SP1-FIN-65151X-01 / Accounting & Finance / Professor Francois Silatchom MODULE 3 POWERLINE NETWORK CORP. Operating Leverage‚ Financial Leverage‚ and the Optimal Capital Structure TEAM D1 Laura Hamin – lhny86@nycap.rr.com Raymond Negron – ffnegron@hotmail.com Eulises Roman – ermediaus@aol.com Myeshia Wagner – mrs.wagner1982@yahoo.com Table of Contents Executive Summary 3 Introduction 3 Analysis 4 Figure 1: Risk Comparison between Plans L and H 4 Figure 2: Operating probability
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the firm’s weighted-average cost of capital at various combinations of debt and equity; given the following information? Show work Debt/Assets After-Tax Cost of Debt Cost of Equity Cost of Capital 0% 8% 12% ? 10% 8% 12% ? 20% 8% 12% ? 30% 8% 13% ? 40% 9% 14% ? 50% 10% 15% ? 60% 12% 16% ? WACC = W d * K d + W e * K e Debt/Assets Wd After-Tax Cost of Debt We Cost of Equity Cost of Capital 0% 0 8% 1 12% 0.12 = 12% 10% 0
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CASE STUDY 1: The Wm. Wrigley Jr. Company capital structure‚ valuation‚ and cost of capital [10 MARKS OUT OF 100 MARKS TOTAL] Semester 1‚ 2013 Background: The term capital structure refers to the way a corporation finances its assets through some combination of equity and debt. Each form has its own benefits and drawbacks and firm managers attempt to find the perfect capital structure in terms of risk / reward payoff for shareholders. See these podcasts:
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to develop decision-making ability based on Corporate Finance theory. Hence‚ it combines lectures with case analysis. The course and the cases deal with selected topics in Corporate Finance such as valuation‚ capital budgeting‚ cost of capital‚ mergers and acquisitions‚ capital structure policy‚ and warrant and convertible use and valuation. The purpose of the cases is not to introduce these topics‚ but to further examine the theoretical concepts and models of finance and how they can be applied
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| |Market Value of Equity |(i)*(ii) = Rs. 240880.64 crores | Being debt structure absent in Nalco the cost of debt is zero‚ Therefore WACC ( Weighted Average Cost of Capital) |WACC |KePe + KdPd + KpPp | |WACC by (ONGC)
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steps to be taken on the part of Polaroid to avoid the immediate dangers they face. Specifically: 1. The company must stop repurchasing their sales as a defence against potential hostile takeover moves by predators. 2. A mixed structure should be adopted as for capital restructuring adjusted to the scenarios of decreasing profitability and increasing profitability. In the former‚ the restructuring proposal involves a 60% to 40% proportion of new debt/ new shares issued. The existing debt of the
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to analyze firm performance‚ value financial assets‚ determine the cost of capital‚ evaluate capital structure and dividend policies‚ and know the basics of raising capital in order to make informed investment and financing decisions. Topic areas will include financial performance measurement‚ valuation‚ capital budgeting‚ capital market theory‚ basics of investments‚ cost of capital‚ raising capital‚ and capital structure and dividends. Instructor: Daniel McConaughy Office: JH4103 Office Hours:
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