Corporate Finance: Instructor\'s Manual Applied Corporate Finance

Aswath Damodaran 301 !Application Test: Would you expect your firm to gain or lose from using a lot of debt? ! Considering, for ...

Aswath Damodaran 302 A Hypothetical Scenario ! Assume you operate in an environment, where (a) there are no taxes (b) there is n ...

Aswath Damodaran 303 The Miller-Modigliani Theorem ! In an environment, where there are no taxes, default risk or agency costs, ...

Aswath Damodaran 304 Implications of MM Theorem ! Leverage is irrelevant. A firm's value will be determined by its project cash ...

Aswath Damodaran 305 What do firms look at in financing? ! Is there a financing hierarchy? ! Argument: There are some who argue ...

Aswath Damodaran 306 Rationale for Financing Hierarchy ! Managers value flexibility. External financing reduces flexibility more ...

Aswath Damodaran 307 Preference rankings long-term finance: Results of a survey Ranking Source Score 1 Retained Earnings 5. 61 2 ...

Aswath Damodaran 308 Financing Choices You are reading the Wall Street Journal and notice a tombstone ad for a company, offering ...

Aswath Damodaran 309 Determining Optimal Financing Mix: Approaches and Alternatives ...

Aswath Damodaran 310 Pathways to the Optimal ! The Cost of Capital Approach: The optimal debt ratio is the one that minimizes th ...

Aswath Damodaran 311 I. The Cost of Capital Approach ! Value of a Firm = Present Value of Cash Flows to the Firm, discounted bac ...

Aswath Damodaran 312 Measuring Cost of Capital ! It will depend upon: (a) the components of financing: Debt, Equity or Preferre ...

Aswath Damodaran 313 Recapping the Measurement of cost of capital ! The cost of debt is the market interest rate that the firm h ...

Aswath Damodaran 314 Costs of Debt & Equity A recent article in an Asian business magazine argued that equity was cheaper th ...

Aswath Damodaran 315 Fallacies about Book Value 1. People will not lend on the basis of market value. 2. Book Value is more reli ...

Aswath Damodaran 316 Issue: Use of Book Value Many CFOs argue that using book value is more conservative than using market value ...

Aswath Damodaran 317 Applying Cost of Capital Approach: The Textbook Example D/(D+E) ke kd After-tax Cost of DebtWACC 0 10.50% 8 ...

Aswath Damodaran 318 WACC and Debt Ratios Weighted Average Cost of Capital and Debt Ratios Debt Ratio W AC C 9. 40 % 9. 60 % 9. ...

Aswath Damodaran 319 Current Cost of Capital: Disney ! Equity Cost of Equity = Riskfree rate + Beta * Risk Premium = 4 % + 1. 2 ...

Aswath Damodaran 320 Mechanics of Cost of Capital Estimation 1. Estimate the Cost of Equity at different levels of debt: Equity ...