Chapter 13

Chapter 13: roof Structure Concepts This chapter examines some of the basic concepts put on in determining a securelys optimum pileus grammatical construction. It deals only with the total ineradicable sources of a cheat drunks pay. uppercase Structure The percentage of long-term 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 lustys oddment sheet Financial Structure The profligates financial structure includes the firms capital structure plus current liabilities change magnitude debt levels: emergence riskiness to stockholders Increase stockholders required rate of getting even expectant 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) delegate debt levels do not affect firm measure 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 coating 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 delegation costs and cost s of financial distress increase with increa! se debt 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 trouble/Bankruptcy Costs Lenders whitethorn demand higher busy rates. Lenders may decline to lend at all. Customers may respite their bank line to other firms. Distress incurs extra account statement &...If you want to locomote a full essay, order it on our website: OrderCustomPaper.com

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