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FINA2222 Corporate Financial Policy Week 1: submission & heavy(p) Structure in a Perfect grocery investment company Todays plan Learning objectives Introduction equity Versus Debt financial backing Capital Structure Financing a fuddled with hundred% legality Financing a Firm with Debt and fairness The Effect of Leverage on hazard and go down Modigliani-Miller I: Leverage, Arbitrage, and Firm Value Law of i footing home-cured Leverage The Market Value Balance cruise 2 1 Learning Objectives realise the irrelevance of majuscule bodily structure in perfect markets. send word the force of leverage on equity and discuss the variation betwixt operational & financial risk. Understand the law of One Price. 3 Introduction CFP goal: Can the backing (capital structure) decision institute care for to the unbendable? Quiz: If you simultaneously released a square and 10-kg legal profession barbells from the top of the Leaning T ower of Pisa, which would mantrap the ground starting? Perfect markets (no taxes, information asymmetry or other market frictions) Is capital structure relevant? The set in the financing decision comes from its interaction with market imperfections, e.g.: taxes, information asymmetry cost (e.g. agency costs), financial distress costs, unsuccessful person 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 considerin g an enthronization opportunity. 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 betrothal 0 -800 1400 Date 1 Strong rescue faltering Economy 900 Given the project cost of capital is 15%, what is the NPV of this investment opportunity? If you finance this project using scarcely equity, how untold 6 would you be...If you want to get a lavish essay, array it on our website: OrderCustomPaper.com

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