CP

484 CHAPTER 13 Capital Structure Decisions and for Plan B, How does operating leverage affect business risk? Other things held c ...

Business and Financial Risk 485 business risk occurs because debtholders, who receive fixed interest payments, bear none of the ...

486 CHAPTER 13 Capital Structure Decisions Capital Structure Theory In the previous section, we showed how capital structure cho ...

Capital Structure Theory 487 5 .All investors have the same information as management about the firm’s future investment opportu ...

488 CHAPTER 13 Capital Structure Decisions the levered firm’s dividends and interest payments. Under MM’s assumptions, the cash ...

Capital Structure Theory 489 . (13-6) With a tax rate of about 40 percent, this implies that every dollar of debt adds about 40 ...

490 CHAPTER 13 Capital Structure Decisions Thus it appears as though the presence of personal taxes reduces but does not com- pl ...

Capital Structure Theory 491 3 .While theory and empirical work support the general shape of the curve in Fig- ure 13-3, this gr ...

492 CHAPTER 13 Capital Structure Decisions Now let’s consider Firm N. Suppose its managers have information that new orders are ...

Capital Structure Theory 493 By contrast, managers with limited “excess cash flow” are less able to make wasteful expenditures. ...

494 CHAPTER 13 Capital Structure Decisions reserve borrowing capacity. Firms with few profitable investment opportunities should ...

Estimating the Optimal Capital Structure 495 both theoretically and empirically, that beta increases with financial leverage. In ...

496 CHAPTER 13 Capital Structure Decisions Note that beta is the only variable that can be influenced by management in the CAPM ...

TABLE 13-3 Strasburg’s Optimal Capital Structure Percent Market After-Tax Financed Debt/Equity, Cost of Debt, Estimated Cost of ...

498 CHAPTER 13 Capital Structure Decisions 5. Estimating Shareholder Wealth and Stock Price Strasburg should now recapitalize,me ...

Estimating the Optimal Capital Structure 499 Here D 0 is the amount of debt the company had before the recap, which for Strasbur ...

500 CHAPTER 13 Capital Structure Decisions Recall from Chapter 12 that the value of equity is the total corporate value minus th ...

Estimating the Optimal Capital Structure 501 Strasburg used the entire debt proceeds to repurchase stock, which means the number ...

502 CHAPTER 13 Capital Structure Decisions FIGURE 13-5 Effects of Capital Structure on Value, Cost of Capital, Stock Price, and ...

Checklist for Capital Structure Decisions Firms generally consider the following factors when making capital structure decisions ...