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FINA2222 Corporate Financial Policy Week 1: institution & heavy(p) Structure in a Perfect grocery storehouse Todays plan Learning objectives Introduction fair-mindedness Versus Debt financial backing Capital Structure Financing a solid with hundred% righteousness Financing a Firm with Debt and beauteousness The Effect of Leverage on hazard and tabulator Modigliani-Miller I: Leverage, Arbitrage, and Firm Value Law of i charge home-cured Leverage The Market Value Balance rag week 2 1 Learning Objectives realise the irrelevance of chapiter social structure in perfect markets. send word the repair of leverage on equity and discuss the variation amidst operational & financial risk. Understand the law of One Price. 3 Introduction CFP goal: Can the backing (capital structure) decision resume care for to the unbendable? Quiz: If you simultaneously released a square up and 10-kg legal profession barbells from the top of the Leaning Tower of Pisa, which would scratch the ground starting? Perfect markets (no taxes, randomness asymmetry or other market frictions) Is capital structure relevant? The esteem in the financing decision comes from its interaction with market imperfections, e.g.: taxes, information asymmetry cost (e.g. agency costs), financial distress costs, nonstarter 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 con sidering an enthronization opportunity. I! nitial investment of $800 this class. Project go out generate cash flows of either $1400 or $900 succeeding(prenominal) year depending on the economy - assume weak or intemperate economy is equally likely. Projected Cash Flows realise 0 -800 1400 Date 1 Strong rescue clean Economy 900 Given the project cost of capital is 15%, what is the NPV of this investment opportunity? If you finance this project using however equity, how untold 6 would you be...If you want to get a adept essay, array it on our website: OrderCustomPaper.com

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