BUSF_A01.qxd

Chapter 11 • Gearing, the cost of capital and shareholders’ wealth and more generally, VU=VG where VUand VGare the total value o ...

The Modigliani and Miller view of gearing because of higher risk. The net effect of these factors on the value of each share wil ...

Chapter 11 • Gearing, the cost of capital and shareholders’ wealth investment in securities, in the UK at least, is undertaken b ...

The Modigliani and Miller view of gearing interest). The derivation of the above is shown in Appendix II to this chapter. The te ...

Chapter 11 • Gearing, the cost of capital and shareholders’ wealth the WACC line can only continue its downward path if the cost ...

Other practical issues relating to capital gearing If a business is simultaneously highly geared in both operating and capital t ...

Chapter 11 • Gearing, the cost of capital and shareholders’ wealth In the context of capital gearing, such a cost can arise beca ...

Evidence on gearing a shareholder wealth maximisation objective, they are presumably using gearing to promote that objective. Ri ...

Chapter 11 • Gearing, the cost of capital and shareholders’ wealth other words, the greater the value of the tax shield, the hig ...

Gearing and the cost of capital – conclusion levels, seems naïve. It appears to conflict with most of the evidence on the effici ...

Chapter 11 • Gearing, the cost of capital and shareholders’ wealth ‘The interest rate demanded by lenders remains the same at al ...

Pecking order theory VG=VU+TBG−Present value of the expected cost of bankruptcy As gearing increases, the value of the tax shiel ...

Chapter 11 • Gearing, the cost of capital and shareholders’ wealth l Arising from the preceding point, managers fear that the ma ...

Weighted average cost of capital revisited Beattie, Goodacre and Thomson (2006) surveyed a number of UK businesses and found tha ...

Chapter 11 • Gearing, the cost of capital and shareholders’ wealth The cost of capital of elements of financing at different lev ...

Summary Capital (financial) gearing (CG) lCG means financing partly through fixed-return finance (in practice, usually borrowing ...

Chapter 11 • Gearing, the cost of capital and shareholders’ wealth lThe pecking order for raising funds is: 1 retained profit; 2 ...

Problems 11.1 Why is debt finance usually cheaper than equity finance in the same business? 11.2 According to MM, what happens t ...

Chapter 11 • Gearing, the cost of capital and shareholders’ wealth 11.4 Mile Long Merchants Limited (MLM) runs two small superma ...

Problems A board meeting has been scheduled to make a decision as to the means of financing the acquisition. In advance of the m ...