Principles of Managerial Finance

CHAPTER 12 Leverage and Capital Structure 523 TABLE 12.8 Debt Ratios for Selected Industries and Lines of Business (Fiscal Years ...

524 PART 4 Long-Term Financial Decisions In Practice Enron Corp.’s December 31, 2000, balance sheet showed long-term debt of $10 ...

CHAPTER 12 Leverage and Capital Structure 525 Franco Modigliani and Merton H. Miller, “The Cost of Capital, Corporation Finance ...

526 PART 4 Long-Term Financial Decisions TABLE 12.9 Sales and Associated EBIT Calculations for Cooke Company ($000) Probability ...

CHAPTER 12 Leverage and Capital Structure 527 TABLE 12.10 Capital Structures Associated with Alternative Debt Ratios for Cooke C ...

528 PART 4 Long-Term Financial Decisions TABLE 12.11 Level of Debt, Interest Rate, and Dollar Amount of Annual Interest Associat ...

CHAPTER 12 Leverage and Capital Structure 529 TABLE 12.12 Calculation of EPS for Selected Debt Ratios ($000) for Cooke Company P ...

530 PART 4 Long-Term Financial Decisions TABLE 12.13 Expected EPS, Standard Deviation, and Coefficient of Variation for Alternat ...

CHAPTER 12 Leverage and Capital Structure 531 3.50 3.00 3.18 2.50 2.00 0.50 0.75 1.00 1.25 1.50 Expected EPS ($) 0 10 20 30 40 5 ...

532 PART 4 Long-Term Financial Decisions asymmetric information The situation in which managers of a firm have more information ...

CHAPTER 12 Leverage and Capital Structure 533 signal A financing action by manage- ment that is believed to reflect its view of ...

534 PART 4 Long-Term Financial Decisions Annual Cost (%) Value V* M = Optimal Capital Structure 0 Debt/Total Assets V = EBIT × ( ...

CHAPTER 12 Leverage and Capital Structure 535 EBIT–EPS approach An approach for selecting the capital structure that maximizes e ...

536 PART 4 Long-Term Financial Decisions The relationship that is expected to exist between EPS and owner wealth is not one of ...

CHAPTER 12 Leverage and Capital Structure 537 Capital structure debt ratio EBIT $100,000 $200,000 Earnings per share (EPS) 0% 30 ...

538 PART 4 Long-Term Financial Decisions The degree of financial leverage (DFL) is reflected in the slope of the EBIT–EPS funct ...

CHAPTER 12 Leverage and Capital Structure 539 TABLE 12.14 Required Returns for Cooke Company’s Alternative Capital Structures Co ...

540 PART 4 Long-Term Financial Decisions TABLE 12.15 Calculation of Share Value Estimates Associated with Alternative Capital St ...

CHAPTER 12 Leverage and Capital Structure 541 2.00 2.50 3.00 3.50 15.00 20.00 25.00 0 10 20 30 40 50 60 70 Maximum Share Value M ...

542 PART 4 Long-Term Financial Decisions TABLE 12.16 Important Factors to Consider in Making Capital Structure Decisions Concern ...