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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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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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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