Topic 4 Financial Levarage And Capital Structure

Financial Leverage and Capital Structure

Outline ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Capital Restructuring ,[object Object],[object Object],[object Object],[object Object]

Choosing a Capital Structure ,[object Object],[object Object],[object Object],[object Object]

The Effect of Leverage ,[object Object],[object Object],[object Object],[object Object],[object Object]

Example: Financial Leverage, EPS and ROE – Part I ,[object Object],[object Object]

Example: Financial Leverage, EPS and ROE – Part II ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Break-Even EBIT ,[object Object],[object Object],[object Object]

Example: Homemade Leverage and ROE ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Capital Structure Theory ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Capital Structure Theory Under Three Special Cases ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Case I – Propositions I and II ,[object Object],[object Object],[object Object],[object Object],[object Object]

Case I - Equations ,[object Object],[object Object],[object Object],[object Object]

Case I - Example ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

The CAPM, the SML and Proposition II ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Business Risk and Financial Risk ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Case II – Cash Flow ,[object Object],[object Object],[object Object],[object Object]

Case II - Example 3470 3300 CFFA 2970 3300 Net Income 1530 1700 Taxes (34%) 4500 5000 Taxable Income 500 0 Interest 5000 5000 EBIT Levered Firm Unlevered Firm

Interest Tax Shield ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Case II – Proposition I ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Example: Case II – Proposition I ,[object Object],[object Object],[object Object],[object Object],[object Object]

Case II – Proposition II ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Example: Case II – Proposition II ,[object Object],[object Object],[object Object],[object Object],[object Object]

Case III ,[object Object],[object Object],[object Object],[object Object],[object Object]

Bankruptcy Costs ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

More Bankruptcy Costs ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Conclusions ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Cost of capital and value of the firm

Managerial Recommendations ,[object Object],[object Object],[object Object],[object Object]

The Value of the Firm ,[object Object],[object Object],[object Object],[object Object],[object Object]

Observed Capital Structure ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Work the Web Example ,[object Object],[object Object],[object Object],[object Object]

Bankruptcy Process – Part I ,[object Object],[object Object],[object Object],[object Object]

Bankruptcy Process – Part II ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Quick Quiz ,[object Object],[object Object],[object Object],[object Object],[object Object]

Topic 4 Financial Levarage And Capital Structure

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Topic 4 Financial Levarage And Capital Structure