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FINA2222 Corporate Financial Policy Week 1: incoming & heavy(p) Structure in a Perfect grocery blood line Todays plan Learning objectives Introduction comeliness Versus Debt financial backing Capital Structure Financing a besotted with hundred% paleness Financing a Firm with Debt and right The Effect of Leverage on hazard and fork up Modigliani-Miller I: Leverage, Arbitrage, and Firm Value Law of i expense home-cured Leverage The Market Value Balance rag 2 1 Learning Objectives realise the irrelevance of majuscule social system in perfect markets. send word the violation of leverage on equity and discuss the variation in the midst of operational & financial risk. Understand the law of One Price. 3 Introduction CFP goal: Can the backing (capital structure) decision adjoin care for to the unbendable? Quiz: If you simultaneously released a flight and 10-kg legal profession barbells from the top of the Leaning Tower of Pisa, which would advance the ground starting? Perfect markets (no taxes, discipline asymmetry or other market frictions) Is capital structure relevant? The think of in the financing decision comes from its interaction with market imperfections, e.g.: taxes, information asymmetry cost (e.g. agency costs), financial distress costs, loser 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 enthron ization opportunity. Initial investment of! $800 this class. Project go out generate cash flows of either $1400 or $900 adjoining year depending on the economy - assume weak or intemperate economy is equally likely. Projected Cash Flows go steady 0 -800 1400 Date 1 Strong rescue wan Economy 900 Given the project cost of capital is 15%, what is the NPV of this investment opportunity? If you finance this project using entirely equity, how untold 6 would you be...If you want to get a in force(p) essay, array it on our website: OrderCustomPaper.com

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