Fundamentals of Financial Management (Concise 6th Edition)

De b t : R o c k e t B o o s t e r o r An c h o r? (^13) Capital Structure and Leverage CHAPTER 400 If it is to grow, a firm nee ...

When we calculated the weighted average cost of capital (WACC) in Chapter 10, we assumed that the! rm had a speci! c target capi ...

PART 5 Capital Structure and Dividend Policy whereas if the debt ratio is above the target, equity will be used. The target may ...

Chapter 13 Capital Structure and Leverage 403 13-2 BUSINESS AND FINANCIAL RISK In Chapter 8, we examined risk from the viewpoint ...

404 Part 5 Capital Structure and Dividend Policy Business risk depends on a number of factors, the more important of which are l ...

Chapter 13 Capital Structure and Leverage 405 Also, if a! rm operates in a politically unstable area, it may be subject to polit ...

406 Part 5 Capital Structure and Dividend Policy Here P is average sales price per unit of output, Q is units of output, V is va ...

Chapter 13 Capital Structure and Leverage 407 Thus, for Plan A, QBE! _____$20,000 $2.00 " $1.50 ! 40,000 units And for Plan B, Q ...

408 Part 5 Capital Structure and Dividend Policy We use the sales probability distribution, together with the operating costs at ...

Chapter 13 Capital Structure and Leverage 409 business risk; so the common stock will be twice as risky as it would have been ha ...

410 Part 5 Capital Structure and Dividend Policy Section I. Zero Debt Debt ratio 0% Assets $200,000 Debt $ 0 Equity $200,000 Sha ...

Chapter 13 Capital Structure and Leverage 411 now have $100,000 of debt with a cost of 12%; hence, its interest expense will be ...

412 Part 5 Capital Structure and Dividend Policy distributions contained in Table 13-2. Although expected EPS would be much high ...

Chapter 13 Capital Structure and Leverage 413 13-3 DETERMINING THE OPTIMAL CAPITAL STRUCTURE As we saw in Figure 13-6, Bigbee’s ...

414 Part 5 Capital Structure and Dividend Policy to reduce the stock price. So even though increasing the debt ratio from 40% to ...

Chapter 13 Capital Structure and Leverage 415 In practice,! nancial managers use! nancial statement forecasting models to determ ...

416 Part 5 Capital Structure and Dividend Policy Note that beta is the only variable in the equity cost equation that is under m ...

Chapter 13 Capital Structure and Leverage 417 value because of the feedback effects of debt on the costs of debt and equity. For ...

418 Part 5 Capital Structure and Dividend Policy rises with! nancial leverage, hits a peak of $22.22 at a debt ratio of 40%, and ...

Chapter 13 Capital Structure and Leverage 419 13-4 CAPITAL STRUCTURE THEORY Business risk is an important determinant of the opt ...