I need to know what corporate hedging is and will it increase shareholder value? Also, what are the advantages and disadvantages to this process? I would like references as well.© BrainMass Inc. brainmass.com October 25, 2018, 8:04 am ad1c9bdddf
What is Corporate Hedging?
Hedging is any technique or management strategy transaction used for the purpose of dealing with risks associated with fluctuations in prices of currencies, commodities, or financial statements are limited by offsetting the probability of loss in the ownership of an asset or security through the sue of derivative securities (My Nguyen, 2012). This can be accomplished by activities of buying and selling a forward contract, a futures contract, or an option to offset risk exposure in the cash market. Corporate hedging is using the strategy to protect the organizations exposure to foreign exchange risk. According to Professor of Finance, Ian H. Giddy (n.d), the goal of corporate hedging is not to eliminate all risks, but to change unacceptable risks into an acceptable situation. The challenge of an effective hedging program is determine this level of risk the firm is willing to ...
Corporate hedging and shareholders values are examined.
Debt-equity comparisons considering WACC, corporate tax, leverage, cost of debt
The book I am using is Fundamental of Corporate Finance, 4e
a) Why is debt a comparatively cheaper form of finance than equity?
b) If debt is cheaper than equity, why do companies approach the equity markets?
c) How can one minimize WACC when there is a constraint on raising debt? if so, how?
d) What are the effects of a corporate tax on the WACC of a business?
e) Is minimizing WACC by having a largely debt-based capital structure a high-risk strategy, given the threat of bankruptcy in an over-leveraged business? Explain your answer.
f) What are the extraneous factors which impact the ability of a business to radically alter its debt-equity mix?