Principles of Corporate Finance

Conflicts of Interest Circular File Company has may invest $10 as follows. $0 (90% probability) Invest $10 $120 (10% probability ...

Conflicts of Interest Circular File Company value (post project) w Firm value falls by $2, but equity holder gains $3 Circular F ...

Conflicts of Interest Circular File Company value (assumes a safe project with NPV = $5) w While firm value rises, the lack of a ...

Financial Distress Games ÿCash In and Run ÿPlaying for Time ÿBait and Switch ...

Financial Choices Trade-off Theory - Theory that capital structure is based on a trade-off between tax savings and distress cost ...

Trade Off Theory & Prices 1.Stock-for-debt Stock price exchange offers falls Debt-for-stock Stock price exchange offers rise ...

Issues and Stock Prices w Why do security issues affect stock price? The demand for a firm’s securities ought to be flat. ! Any ...

Pecking Order Theory Consider the following story: The announcement of a stock issue drives down the stock price because investo ...

Pecking Order Theory Some Implications: ‹Internal equity may be better than external equity. ‹Financial slack is valuable. ‹If e ...

u Interactions of Investment and Financing Decisions Principles of Corporate Finance Brealey and Myers Sixth Edition Chapter 19 ...

Topics Covered w After Tax WACC w Tricks of the Trade w Capital Structure and WACC w Adjusted Present Value ...

After Tax WACC w The tax benefit from interest expense deductibility must be included in the cost of funds. w This tax benefit r ...

After Tax WACC      +  ×      = −  × D V rE E r V D WACC ( 1 Tc) Tax Adjusted Formula ...

After Tax WACC Example - Sangria Corporation The firm has a marginal tax rate of 35%. The cost of equity is 14.6% and the pretax ...

After Tax WACC Example - Sangria Corporation - continued Balance Sheet (Book Value, millions) Assets 100 50 Debt 50 Equity Total ...

After Tax WACC Example - Sangria Corporation - continued Balance Sheet (Market Value, millions) Assets 125 50 Debt 75 Equity Tot ...

After Tax WACC Example - Sangria Corporation - continued Debt ratio = (D/V) = 50/125 = .4 or 40% Equity ratio = (E/V) = 75/125 = ...

After Tax WACC Example - Sangria Corporation - continued       +  ×     = −  × D V rE r E V WACC ( 1 Tc) D 84 % . ...

After Tax WACC Example - Sangria Corporation - continued The company would like to invest in a perpetual crushing machine with c ...

After Tax WACC Example - Sangria Corporation - continued The company would like to invest in a perpetual crushing machine with c ...