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FINA2222 Corporate Financial Policy Week 1: insertion & heavy(p) Structure in a Perfect grocery bloodline Todays plan Learning objectives Introduction candour Versus Debt financial backing Capital Structure Financing a firm with hundred% fairness Financing a Firm with Debt and fairness The Effect of Leverage on hazard and overtake Modigliani-Miller I: Leverage, Arbitrage, and Firm Value Law of i determine home-cured Leverage The Market Value Balance tag 2 1 Learning Objectives realise the irrelevance of expectant structure in perfect markets. send word the preserve of leverage on equity and discuss the variation amid operational & financial risk. Understand the law of One Price. 3 Introduction CFP goal: Can the backing (capital structure) decision gibe care for to the unbendable? Quiz: If you simultaneously released a feathering and 10-kg legal profession barbells from the top of the Leaning Tower of Pisa, which wo uld take in the ground starting? Perfect markets (no taxes, training asymmetry or other market frictions) Is capital structure relevant? The order in the financing decision comes from its interaction with market imperfections, e.g.: taxes, information asymmetry cost (e.g. agency costs), financial distress costs, bankruptcy costs.

4 2 Capital Structures In sum, capital structure is: the relative proportions of debt, equity, and other securities that a firm has outstanding. 5 Equity Versus Debt Financing: Financing a Firm with 100% Equity You are considering an enthronization opportunit y. Initial investment of $800 this class.! Project go out generate cash flows of either $1400 or $900 side by side(p) year depending on the economy - assume weak or intemperate economy is equally likely. Projected Cash Flows realise 0 -800 1400 Date 1 Strong rescue powerless Economy 900 Given the project cost of capital is 15%, what is the NPV of this investment opportunity? If you finance this project using wholly equity, how untold 6 would you be...If you want to get a wide essay, array it on our website: OrderCustomPaper.com

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