industry demand and price‚ along with rising fuel prices and an economic recession. These pressures now force Du Pont to source its financing through debt‚ foregoing its risk averse capital structure policy in the past. It now aims to determine the most feasible capital structure that will enable it to finance capital expenditures vital to its competitive advantage while maintaing its financial flexibility. Du Pont now faces two alternatives: 1) Reduce the debt/total capitalization ratio
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OPTIMAL CAPITAL STRUCTURE The optimal capital structure for a company should be the mix of equity‚ debt and hybrid instruments that minimizes the overall cost of funding‚ i.e. it should minimize the company’s weighted average cost of capital. In practice‚ however‚ it is not possible to specify this optimal capital structure exactly‚ for any individual company. It clearly makes sense to obtain funds at the lowest possible cost. In the long run‚ debt is cheaper than equity. However‚ when a company’s
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Assignment: Capital Structure PART A 1. Apple Corporation has 2.5 million shares outstanding with a market value of $2.00 each (expected return = 16%) and debt with a market value of $1‚ 000‚000 and a return of 10% Required a. What is the return on the capital of Apple Corporation? [Show all workings and formulae) [7.5 marks] 2. Samsung generates pre-tax earnings of $2‚000‚000 per year. Currently it has issued 1 million shares which sell for $10 each. Samsung has no debt in
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Birmingham Business School BSc Accounting and Finance Capital structure and shareholder return in Chinese banking industry Your Name Your Registration Number (07 14856) Extended Essay 2011-2012 Supervisor’s Name The length of the main body of the essay: 5‚770 words Index Abstract In June 2004‚ Basel II was published and it required banks to set up risk and capital management requirements so as to ensure adequate capital for the risks‚ to which the banks are exposed through
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decisions‚ the optimization of capital structure has a great influence on the performance of the companies‚ for a reasonable capital structure can decrease the financing cost‚ take advantage of the financial leverage and play an important role in corporation governance. Given the importance of capital structure‚ this essay will firstly discuss the ways that capital structure affects corporation value‚ then it will introduce the influencing factors of capital structure and how to effectively manage
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2005‚ and the European region’s contribution has been steadily increased to 9.1% in 2005 from 7.2% in 2003. CAPITAL STRUCTURE Capital structure refers to the sources and division of
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Chapter 16- Old 10th Edition Capital Structure Decisions: The Basics MINI-CASE ASSUME YOU HAVE JUST BEEN HIRED AS BUSINESS MANAGER OF PIZZAPALACE‚ A PIZZA RESTAURANT LOCATED ADJACENT TO CAMPUS. THE COMPANY’S EBIT WAS $500‚000 LAST YEAR‚ AND SINCE THE UNIVERSITY’S ENROLLMENT IS CAPPED‚ EBIT IS EXPECTED TO REMAIN CONSTANT (IN REAL TERMS) OVER TIME. SINCE NO EXPANSION CAPITAL WILL BE REQUIRED‚ PIZZAPALACE PLANS TO PAY OUT ALL EARNINGS AS DIVIDENDS. THE MANAGEMENT GROUP OWNS ABOUT 50 PERCENT OF
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cost of capital. . If the business earns more than its cost of capital‚ the market value of the business will increase. Likewise‚ if returns on long-term investments are below the cost of capital‚ market values will decline. Therefore‚ how we manage capital is extremely important to fulfilling the basic objective of increased shareholder value. This report is basically concentrated on the topic of “Firm & Industry cost of capital”. And then there is an empirical analysis of cost of capital on pharmaceutical
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Caleb Johnson Capital Structure Theory Working Capital Management Dr. Woodward 10/14/14 Capital Structure Theory Part a. (Capital Structure) Capital structure is very important. Not only does it influence the return a company earns for its shareholders but can also be a determining factor on whether or not a firm survives a recession. A company’s capital structure is a mix of their short-term debt‚ long-term debt‚ and equity. A firm’s capital structure is the way the firm finances all of its
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Much has been written on organizational structure and change management. Research commonly breaks down organizations into stages of growth or phases in a life cycle using varying factors and benchmarks. Depending on the article‚ the organization can be in any number of stages. However‚ there are definite commonalities that can be concluded amongst the differing research. For the purposes of our project‚ we focused on three articles that helped determine where STSM is and how our recommended changes
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