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Capital Structure and Firm Value

Finance Capital Structure Decision and the Cost of Capital

Considering the following three companies: i) eBay ii) The Clorox Company (CLX) iii) Alaska Air Group (NYS: ALK). Upon reviewing total debt/equity ratios, company betas, profitability ratios, company revenue, assets, and liabilities, and the nature of the operations of the companies including the nature of their custo

Capital Structure Decision and Cost of Capital

In simple words, the capital structure is the combination of debt and equity used to finance a company. The background readings of this Module provide plenty of information regarding both the issue of the capital structure decision and the concept of the weighted average cost of capital. 1) For the Module, please lookup the f

Analysis of Capital Structure

See the attached file. Demonstrate with calculations and financial data the questions below: The ADT Corporation (TYCO) 1. What are the operating risks of the company? 2. What is the financial risk of the company (the debt to total capitalization ratio)? 3. Does the company have any preferred stock? 4. What is the capi

Capital Structure Analysis: Liabilities and Owner's Equity

Capital Structure Analysis - the liabilities and owner's equity for Campbell Industries is below. Accounts payable: \$468,000 Notes payable: \$258,000 Current liabilities: \$726,000 Long-term debt: \$1,101,000 Common equity: \$4,654,000

How can using more debt impact a firm's capital structure?

Questions: 1. How can using more debt impact a firm's capital structure? 2. Discuss the trade-offs between incremental IPO proceeds and debt financing. 3. How would the company's balance sheet be impacted by debt financing rather than using cash? 4. How would the company's return on equity be impacted by utilizing more

EPS: Simple Capital Structure

On January 1, 2010, Bailey Industries had stock outstanding as follows. 6% Cumulative preferred stock \$100 par value issued and outstanding 10,000 shares \$1,000,000 Common stock, \$10 par value, issued and outstanding 200,000 shares 2,000,000 To acquire the net assets of three smaller companies, Bailey authorized th

The Importance of Pay Structure and Workplace Satisfaction

What is the importance of pay structure and administration satisfaction in the workplace?

The 'Optimal Capital Structure'

Finance academics and theoreticians as well as practitioners are still debating the issue of the 'optimal capital structure'. The overall notion is that there exists an optimal financing package but that this 'package' is not the same for all companies. Theory focuses on the 'big issues' - the debt-equity issue - without goi

Why is borrowing advantageous to taxes for companies?

Briefly explain why borrowing is advantageous to taxes for companies, as they do not seem take on very large proportions of debt.

The Rise and Fall of a Biotech Firm

Describe, from a regulatory standpoint, the rise and fall of a biotech firm. It can be any firm, but preferably a US firm. In your description, give a brief history, describe the main product(s) and what ultimately led to the firms demise.

Key elements in organizational structure

There are six key elements to consider when discussing organization structure considerations which are: - Work specialization - Departmentalization - Chain of command - Span of control - Centralization and decentralization - Formalization Can you pick one and discuss its significance within the context of your current

What is meant by capital structure?

What is meant by capital structure? What metrics can be used to assess improvement or deterioration in the capital structure? How is risk influenced by the capital structure? What is the effect of increased or decreased risk in the capital structure?

Calculation for the given capital

A company's capital structure consists solely of debt and common equity. It can issue debt at rd=11%, and its common stock currently pays a \$2.00 dividend per share (Do=\$2.00). The stock's price is currently \$24.75, its dividend is expected to grow at a constant rate of 7% per year, its tax rate is 35%, and it WACC is 13.95%. Ho

The company has no growth opportunities (g = 0), so the company pays out all of its earnings as dividends (EPS = DPS). The consultant believes that if the company moves to a capital structure financed with 20 percent debt and 80 percent equity (based on market values) that the cost of equity will increase to 11 percent and that the pre-tax cost of debt will be 10 percent. If the company makes this change, what would be the total market value of the firm? (The answers are in millions.)

5.A consultant has collected the following information regarding Young Publishing Total assets \$3,000 million Tax rate 40% Operating income (EBIT) \$800 million Debt ratio 0% Interest expense \$0 million WACC 10% Net income \$480 million M/B ratio 1.00 #215 Share price \$32.00 EPS = DPS =\$3.20 The company has no grow

EPS: Simple Capital Structure - Bailey Industries

(EPS: Simple Capital Structure) On January 1, 2010, Bailey Industries had stock outstanding as follows: 6% cumulative preferred stock, \$100 par value, issued and outstanding 10,000 shares \$1,000,000 Common stock, \$10 par value, issued and outstanding 200,000 shares \$2,

Cisco's strategic moves have dictated that it change its structure.

As the environment change firms often need to change their strategies to adapt to, or exploit the new situation. To manage increased complexity and introduce appropriate controls for the new strategy they must often change their structure as well. The history of Cisco demonstrates that structure usually follows strategy; howev

The manager of R&D for a drug company said that only 5 percent of the company new products ever achieve market success. He also said the industry average is 10 percent and wondered how his organization might increase its success rate. If you were acting as a consultant, what advice would you give him concerning organization stru

Market value of firm with capital structure

Please help me with a breakdown of how this would be calculated: Rotek has a capital structure of \$300,000 in equity and \$300,000 in perpetual debt. The firm's cost of equity is 14% and its cost of debt is 9 percent. If the firm has an expected perpetual net operating income of \$120,000 and a marginal tax rate of 40%, what is

Capital Structure Firms

The capital structure of a firm is a crucial decision that executives must make. In fact, the question that is highly related to the capital budgeting decision was discussed last week. That is after we have decided that a particular project is worth more than it costs we must determine how to finance its acquisition, either by

Difference between capital structure, business risk, financial risk

Explain the difference between capital structure, business risk, financial risk and reserve borrowing capacity.

Discussing the New York Stock Exchange

The most famous financial market in the world is the New York Stock Exchange. What is the mission of the NYSE? Firms must pay a fee to list their shares for sale on the NYSE. What would be the fee for a firm with five million common shares outstanding?

Opportunities a firm can take advantage of for tax benefits

What opportunities can a firm take advantage of for tax benefits through investment activities, and the impact this would have on the firm's capital structure.

Casino industry or a firm in another industry

Firm management is said to consider a number of factors when deciding its capital structure. These include: * The degree of operating risk * The availability of tax shelters provided by things other than debt, such as accelerated depreciation, investment tax credits and operating tax-loss carry-forwards. * The abil

Investment based on the capital structure of a firm.

Identify the advantages and disadvantages of an investment based on the capital structure of a firm.

Market Structure and Strategic Choice Issues

What are the key Market Structure and Strategic Choice issues facing sales automotive industry / company / consumers and how would you as marketer deal with them?

Foreign Organizational Strategy vs. Structure; Knowledge Life Cycle

See attached files. 1. Looking at Figures 7-3 (p. 254 of your text), select one of the organizational structures contained in the graph, and explain why it is located where it is relative to foreign product diversity and foreign sales as a percentage of total sales. 2. Looking at Exhibit 8.5 (p. 304 of your text), explain

Over the past few decades, the cost structure of manufacturing companies has shifted. In the early 1900s, direct material costs were substantial while fixed costs represented a small fraction of total manufacturing costs. However, the cost structure has reversed and now fixed costs make up the majority of total manufacturing costs. What caused this to happen? What would explain the drastic change in cost structure? Explain how making more products that can be sold in a period can increase a company's operating income. Should this tactic be used to increase operating income? Would this happen in service companies or only manufacturing companies? Explain.

Over the past few decades, the cost structure of manufacturing companies has shifted. In the early 1900s, direct material costs were substantial while fixed costs represented a small fraction of total manufacturing costs. However, the cost structure has reversed and now fixed costs make up the majority of total manufacturing cos

Minimize tax exposure for a new venture

You have \$4.6 million to get your venture off the ground and a year before you open your doors. As the tax research and planning expert, it is your task to ensure your company is set up to minimize your tax exposure. The business will be registered in the city and state in which you live. 1. Briefly describe your new business

Organizational Design: The common symptoms of inadequate organizational structure.

See the attached file. Hax and Majluf's 1981 article, "Organizational Design: A Survey and an Approach and the common symptoms of inadequate organizational structure." Choose at least two of them and connecting them to the topics covered. For instance, if you chose (a) from page 445, how does motivation, leadership, etc.

Difficulty for small business to raise capital to start ventures; bootstrap financing

Entrepreneurship - Unit4_DB Source of Funds Andy has joined your small business owners group and is recounting his difficulty in acquiring financing. This leads to a discussion on the following: ? Why is it so difficult for most small business owners to raise the capital needed to start, operate, or expand their venture