FREDERICK OWUSU PREMPEH
|
|
- Ernest Townsend
- 5 years ago
- Views:
Transcription
1 EXCEL PROFESSIONAL INSTITUTE 3.3 ADVANCED FINANCIAL MANAGEMENT LECTURES SLIDES FREDERICK OWUSU PREMPEH
2 EXCEL PROFESSIONAL INSTITUTE Lecture 8 Theories of capital structure traditional and Modigliani and Miller (MM) & Adjusted present values
3 EXCEL PROFESSIONAL INSTITUTE Lecture 8 Theories of capital structure Traditional and Modigliani and Miller (MM)
4 Traditional View of WACC The traditional view is as follows. (a) As the level of gearing increases, the cost of debt remains unchanged up to a certain level of gearing. Beyond this level, the cost of debt will increase as interest cover falls, the amount of assets available for security falls and the risk of bankruptcy increases. (b) The cost of equity rises as the level of gearing increases and financial risk increases. (c) The WACC does not remain constant, but rather falls initially as the proportion of debt capital increases, and then begins to increase as the rising cost of equity (and possibly of debt) becomes more significant. (d) The optimum level of gearing is where the company's WACC is minimised.
5 M&M proposition without taxes: M&M state that (ignoring tax) higher gearing will create more risk for shareholders and hence the cost of equity will increase, but that this is compensated for by the lower cost of debt. As a result, they stated that the weighted average cost of capital will stay constant for a company, however the company is financed.
6 M&M proposition with company taxes: Debt interest gets tax relief, which makes the effective cost of debt to a company lower. As a result, even though the cost of equity will increase with higher gearing, the WACC will fall. As a result, a company should raise as much debt as possible. They derived a formula for calculating how the cost of equity will change with changes in gearing.
7 Example: London plc is an ungeared company with a cost of equity of 15%. They propose raising debt at 8% (pre-tax) and have estimated that the resulting gearing ratio (debt:equity) will be 0.4. The rate of corporation tax is 30%. You are required to calculate: (a) the cost of equity after raising the debt, and (b) the weighted average cost of capital before and after raising the debt.
8 Example: London plc is an ungeared company with a cost of equity of 15%. They propose raising debt at 8% (pre-tax) and have estimated that the resulting gearing ratio (debt:equity) will be 0.4. The rate of corporation tax is 30%. You are required to calculate: (a) the cost of equity after raising the debt, and (b) the weighted average cost of capital before and after raising the debt.
9 Pecking order theory starts that companies raise finance in the easiest way (or the law of least effort ) and that therefore they prefer to use internal funds (retained earnings) first, followed by debt finance, only raising new equity as a last resort. The preferred 'pecking order' for financing instruments is as follows. (a) Retained earnings. To avoid any unwanted signals, managers will try to finance as much as possible through internal funds. (b) Debt. When internal funds have been exhausted and there are still positive NPV opportunities, managers will use debt to finance any further projects until the company's debt capacity has been reached. Secured debt (which is less risky) should be issued first, followed by unsecured (risky) debt. (c) Equity. The 'finance of last resort' is the issue of equity.
10 EXCEL PROFESSIONAL INSTITUTE Adjusted Present Values (APV) method
11 M&M stated that the only benefit of using debt (as opposed to equity) to finance a project was the fact that the company gains as a result of the tax saved on the debt interest (the tax shield). We can use this to provide a way of calculating the gain from a project taking into account the method of financing used. For adjusted present value calculations, there are two steps: (1) Calculate the NPV of the project if all equity financed (2) Calculate the PV of the tax benefit on any debt used The total of the two is the overall gain (or loss) to the company and is known as the Adjusted Present Value (APV).
12 M&M stated that the only benefit of using debt (as opposed to equity) to finance a project was the fact that the company gains as a result of the tax saved on the debt interest (the tax shield). We can use this to provide a way of calculating the gain from a project taking into account the method of financing used. For adjusted present value calculations, there are two steps: (1) Calculate the NPV of the project as if it s all equity financed to find base case NPV (2) Calculate the PV of the tax benefit on any debt used. The total of the two is the overall gain (or loss) to the company and is known as the Adjusted Present Value (APV).
13 Make sure you use the cost of debt to discount the tax relief on interest costs and not the cost of equity. Often in exams you will be given the risk-free rate of return. As tax relief is allowed by the Government and is almost certain, there is an argument for saying that all tax relief should be discounted at the risk-free rate. However, there is the opposing argument that the risk of the tax relief is the same as the risk of the debt to which it relates, and therefore the tax relief should be discounted at the cost of debt. The risk-free rate would also not be used if the company was unlikely to be in a taxpaying position for some years. In the exam we suggest that you make clear the reasons for choosing the discount rate that you have chosen to discount the tax relief, and add a comment that an alternative rate might be used.
14 Issue costs: The costs of issuing the finance needed for the project may also be brought into APV calculations. Issue cost is not discounted as it is assumed to be paid at time 0. Tax effect of issue costs = Tax rate Issue costs Discount rate Spare debt capacity: Projects may yield other incremental benefits, for example increased borrowing or debt capacity. These benefits should be included in the APV calculations, even if the debt capacity is utilised elsewhere. Subsidy: You may face a situation where a company can obtain finance at a lower interest rate than its normal cost of borrowing. In this situation you have to include in the APV calculation the tax shield effect of the cheaper finance and the effect of the saving in interest.
15 The main advantages of the APV are as follows. (a) APV can be used to evaluate all the effects of financing a product, including: (i) Tax shield (ii) Changing capital structure (iii) Any other relevant cost (b) When using APV you do not have to adjust the WACC using assumptions of perpetual risk-free debt.
16 The main difficulties with the APV technique are: (a)establishing a suitable cost of equity for the initial discounted cash flow (DCF) computation as if the project were all equity financed, and also establishing the all equity β (b) Identifying all the costs associated with the method of financing (c) Choosing the correct discount rates used to discount the costs
17 Thank you
Maximizing the value of the firm is the goal of managing capital structure.
Key Concepts and Skills Understand the effect of financial leverage on cash flows and the cost of equity Understand the impact of taxes and bankruptcy on capital structure choice Understand the basic components
More informationPAPER No.: 8 Financial Management MODULE No. : 25 Capital Structure Theories IV: MM Hypothesis with Taxes, Merton Miller Argument
Subject Financial Management Paper No. and Title Module No. and Title Module Tag Paper No.8: Financial Management Module No. 25: Capital Structure Theories IV: MM Hypothesis with Taxes and Merton Miller
More informationDebt. Firm s assets. Common Equity
Debt/Equity Definition The mix of securities that a firm uses to finance its investments is called its capital structure. The two most important such securities are debt and equity Debt Firm s assets Common
More informationCHAPTER 16 CAPITAL STRUCTURE: BASIC CONCEPTS
CHAPTER 16 CAPITAL STRUCTURE: BASIC CONCEPTS Answers to Concepts Review and Critical Thinking Questions 2. False. A reduction in leverage will decrease both the risk of the stock and its expected return.
More informationJEM034 Corporate Finance Winter Semester 2017/2018
JEM034 Corporate Finance Winter Semester 2017/2018 Lecture #9 Olga Bychkova Topics Covered Today Does debt policy matter? (chapter 17 in BMA) How much should a corporation borrow? (chapter 18 in BMA) Debt
More informationLeverage. Capital Budgeting and Corporate Objectives
Leverage Capital Budgeting and Corporate Objectives Professor Ron Kaniel Simon School of Business University of Rochester 1 Overview Capital Structure does not matter!» Modigliani & Miller propositions
More informationAdvanced Corporate Finance. 3. Capital structure
Advanced Corporate Finance 3. Capital structure Practical Information Change of groups! A => : Group 3 Friday 10-12 am F => N : Group 2 Monday 4-6 pm O => Z : Group 1 Friday 4-6 pm 2 Objectives of the
More informationHomework Solution Ch15
FIN 302 Homework Solution Ch15 Chapter 15: Debt Policy 1. a. True. b. False. As financial leverage increases, the expected rate of return on equity rises by just enough to compensate for its higher risk.
More information1 (a) Net present value evaluation Year $000 $000 $000 $000 $000 Sales revenue 1,575 1,654 1,736 1,823 Selling costs (32) (33) (35) (37)
Answers Fundamentals Level Skills Module, Paper F9 Financial Management December 2010 Answers 1 (a) Net present value evaluation Year 1 2 3 4 5 $000 $000 $000 $000 $000 Sales revenue 1,575 1,654 1,736
More informationCapital Structure (General)
Capital Structure (General) Question 1 What is the debt:equity ratio for the following UK company? Assets Fixed assets 120 Current assets Stock 50 Debtors 80 250 Liabilities Creditors due in less than
More informationAdvanced Corporate Finance. 3. Capital structure
Advanced Corporate Finance 3. Capital structure Objectives of the session So far, NPV concept and possibility to move from accounting data to cash flows => But necessity to go further regarding the discount
More informationFinancial Leverage: the extent to which a company is committed to fixed charges related to interest payments. Measured by:
Wk 11 FINS1613 Notes 13.1 Discuss the effect of Financial Leverage Financial Leverage: the extent to which a company is committed to fixed charges related to interest payments. Measured by: The debt to
More informationChapter 15. Chapter 15 Overview
Chapter 15 Debt Policy: The Capital Structure Decision Chapter 15 Overview Target and Optimal Capital Structure Risk and Different Types of Financing Business Risk Financial Risk Determining the Optimal
More informationAFM 371 Practice Problem Set #2 Winter Suggested Solutions
AFM 371 Practice Problem Set #2 Winter 2008 Suggested Solutions 1. Text Problems: 16.2 (a) The debt-equity ratio is the market value of debt divided by the market value of equity. In this case we have
More informationACCA. Paper F9. Financial Management December Revision Mock Answers
ACCA Paper F9 Financial Management December 201 Revision Mock Answers To gain maximum benefit, do not refer to these answers until you have completed the revision mock questions and submitted them for
More informationStudy Unit Cost of Equity, Debt and the WACC 133. Cost of Equity, Debt and the WACC
www.charteredgrindschool.com 133 Study Unit 12 Contents Page A. The Opportunity Cost of Equity Capital 135 B. The Opportunity Cost of Debt Capital 137 C. The Weighted Average Cost of Capital 137 134 www.charteredgrindschool.com
More informationProfessional Level Options Module, Paper P4
Answers Professional Level Options Module, Paper P4 Advanced Financial Management December 2010 Answers 1 Up to 4 professional marks are available for the presentation of the answer, which should be in
More informationFinancial Leverage and Capital Structure Policy
Key Concepts and Skills Chapter 17 Understand the effect of financial leverage on cash flows and the cost of equity Understand the Modigliani and Miller Theory of Capital Structure with/without Taxes Understand
More informationFINANCIAL MANAGEMENT (PART 16) DIVIDEND POLICY-II
FINANCIAL MANAGEMENT (PART 16) DIVIDEND POLICY-II 1. INTRODUCTION Dear Students, Welcome to the lecture series on Financial Management. Today in this lecture we shall cover the topic Dividend Policy. Under
More informationChapter 18 Interest rates / Transaction Costs Corporate Income Taxes (Cash Flow Effects) Example - Summary for Firm U Summary for Firm L
Chapter 18 In Chapter 17, we learned that with a certain set of (unrealistic) assumptions, a firm's value and investors' opportunities are determined by the asset side of the firm's balance sheet (i.e.,
More informationExaminer s report F9 Financial Management December 2017
Examiner s report F9 Financial Management December 2017 General comments The F9 Financial Management exam is offered in both computer-based (CBE) and paper-based (PBE) formats. The structure is the same
More informationTables of discount factors and annuity factors are provided in the appendix at the end of the paper.
UNIVERSITY OF EAST ANGLIA Norwich Business School Main Series UG Examination 2016-17 BUSINESS FINANCE NBS-5008Y Time allowed: 3 hours Answer FOUR questions out of six ALL questions carry EQUAL marks Tables
More informationCapital Structure. Katharina Lewellen Finance Theory II February 18 and 19, 2003
Capital Structure Katharina Lewellen Finance Theory II February 18 and 19, 2003 The Key Questions of Corporate Finance Valuation: How do we distinguish between good investment projects and bad ones? Financing:
More informationCHAPTER 14. Capital Structure in a Perfect Market. Chapter Synopsis
CHAPTR 14 Capital Structure in a Perfect Market Chapter Synopsis 14.1 quity Versus Debt Financing A firm s capital structure refers to the debt, equity, and other securities used to finance its fixed assets.
More informationF3 Financial Strategy
Strategic Level Paper F3 Financial Strategy Senior Examiner s Answers SECTION A Answer to Question One (a)(i) Valuation of Company NN (excluding potential synergistic benefits and integration costs) NN:
More informationFinancing decisions (2) Class 16 Financial Management,
Financing decisions (2) Class 16 Financial Management, 15.414 Today Capital structure M&M theorem Leverage, risk, and WACC Reading Brealey and Myers, Chapter 17 Key goal Financing decisions Ensure that
More informationCHAPTER 15 CAPITAL STRUCTURE: BASIC CONCEPTS
CHAPTER 15 B- 1 CHAPTER 15 CAPITAL STRUCTURE: BASIC CONCEPTS Answers to Concepts Review and Critical Thinking Questions 1. Assumptions of the Modigliani-Miller theory in a world without taxes: 1) Individuals
More informationExaminer s report F9 Financial Management March 2018
Examiner s report F9 Financial Management March 2018 General comments The F9 Financial Management exam is offered in both computer-based exam (CBE) and paperbased exam (PBE) formats. The structure is the
More informationCapital Structure I. Corporate Finance and Incentives. Lars Jul Overby. Department of Economics University of Copenhagen.
Capital Structure I Corporate Finance and Incentives Lars Jul Overby Department of Economics University of Copenhagen December 2010 Lars Jul Overby (D of Economics - UoC) Capital Structure I 12/10 1 /
More informationFinancial Management Bachelors of Business Administration Study Notes & Tutorial Questions Chapter 3: Capital Structure
Financial Management Bachelors of Business Administration Study Notes & Tutorial Questions Chapter 3: Capital Structure Ibrahim Sameer AVID College Page 1 Chapter 3: Capital Structure Introduction Capital
More informationFREDERICK OWUSU PREMPEH
EXCEL PROFESSIONAL INSTITUTE 3.3 ADVANCED FINANCIAL MANAGEMENT LECTURES SLIDES FREDERICK OWUSU PREMPEH EXCEL PROFESSIONAL INSTITUTE Lecture 5 Advanced Investment Appraisal & Application of option pricing
More informationJeffrey F. Jaffe Spring Semester 2015 Corporate Finance FNCE 100 Syllabus, page 1. Spring 2015 Corporate Finance FNCE 100 Wharton School of Business
Corporate Finance FNCE 100 Syllabus, page 1 Spring 2015 Corporate Finance FNCE 100 Wharton School of Business Syllabus Course Description This course provides an introduction to the theory, the methods,
More informationJeffrey F. Jaffe Spring Semester 2011 Corporate Finance FNCE 100 Syllabus, page 1 of 8
Corporate Finance FNCE 100 Syllabus, page 1 of 8 Spring 2011 Corporate Finance FNCE 100 Wharton School of Business Syllabus Course Description This course provides an introduction to the theory, the methods,
More informationMore Tutorial at Corporate Finance
[Type text] More Tutorial at Corporate Finance Question 1. Hardwood Factories, Inc. Hardwood Factories (HF) expects earnings this year of $6/share, and it plans to pay a $4 dividend to shareholders this
More informationCIMA F3 Workbook Questions
CIMA F3 Workbook Questions Lecture 1 Financial Strategy Shareholder Wealth - Illustration 1 Year Share Price Dividend Paid 2007 3.30 40c 2008 3.56 42c 2009 3.47 44c 2010 3.75 46c 2011 3.99 48c There are
More informationF3 Financial Strategy. Examiner s Answers
Strategic Level Paper F3 Financial Strategy May 2012 examination Examiner s Answers Question One Rationale This question begins by evaluating the recent financial performance and dividend policy of B.
More informationChapter 16 Debt Policy
Chapter 16 Debt Policy Konan Chan Financial Management, Fall 2018 Topic Covered Capital structure decision Leverage effect Capital structure theory MM (no taxes) MM (with taxes) Trade-off Pecking order
More informationLet s Build a Capital Structure
FIN 614 Capital tructure Design Principles Professor Robert.H. Hauswald Kogod chool of usiness, AU Let s uild a Capital tructure Determinants of firms debt-equity mix operations funded with a combination
More informationUniversity of Alabama Culverhouse College of Business. Intermediate Financial Management. Name: CWID:
University of Alabama Culverhouse College of Business FI 410 Intermediate Financial Management Dr. Anup Agrawal Name: CWID: Quiz 2 (Practice) Instructions: Encircle the one correct answer to each multiple
More informationChapter 18 Valuation and Capital Budgeting for the Levered Firm Dec. 2012
University of Science and Technology Beijing Dongling School of Economics and management Chapter 18 Valuation and Capital Budgeting for the Levered Firm Dec. 2012 Dr. Xiao Ming USTB 1 Key Concepts and
More informationValuing Levered Projects
Valuing Levered Projects Interactions between financing and investing Nico van der Wijst 1 D. van der Wijst Finance for science and technology students 1 First analyses 2 3 4 2 D. van der Wijst Finance
More informationZ I C A ZAMBIA INSTITUTE OF CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS EXAMINATIONS LICENTIATE LEVEL L6: CORPORATE FINANCIAL MANAGEMENT
Z I C A ZAMBIA INSTITUTE OF CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS EXAMINATIONS LICENTIATE LEVEL L6: CORPORATE FINANCIAL MANAGEMENT SERIES: DECEMBER 2011 TOTAL MARKS 100 TIME ALLOWED: THREE (3) HOURS
More informationCorporate Finance (Honors) Finance 100 Sections 301 and 302 The Wharton School, University of Pennsylvania Fall 2014
Corporate Finance (Honors) Finance 100 Sections 301 and 302 The Wharton School, University of Pennsylvania Fall 2014 Course Description The purpose of this course is to introduce techniques of financial
More informationCapital Structure Questions
Capital Structure Questions What do you think? Will the following firm characteristics result in the use of more or less debt? Large firms More tangible assets More lower risk; better access to capital
More information: Corporate Finance. Financing Projects
380.760: Corporate Finance Lecture 7: Capital Structure Professor Gordon M. Bodnar 2009 Gordon Bodnar, 2009 Financing Projects The capital structure decision the choice of securities a entrepreneur uses
More informationFREDERICK OWUSU PREMPEH
EXCEL PROFESSIONAL INSTITUTE 3.3 ADVANCED FINANCIAL MANAGEMENT LECTURES SLIDES FREDERICK OWUSU PREMPEH EXCEL PROFESSIONAL INSTITUTE Lecture 9 Valuation and the use of free cash flows The free cash flow
More informationUniversity of Pennsylvania The Wharton School
University of Pennsylvania The Wharton School FNCE 100 PROBLEM SET #6 Fall Term 2003 A. Craig MacKinlay Capital Structure 1. The XYZ Co. is assessing its current capital structure and its implications
More informationPaper F9. Financial Management. Specimen Exam applicable from September Fundamentals Level Skills Module
Fundamentals Level Skills Module Financial Management Specimen Exam applicable from September 2016 Time allowed: 3 hours 15 minutes This question paper is divided into three sections: Section A ALL 15
More informationAFM 371 Winter 2008 Chapter 16 - Capital Structure: Basic Concepts
AFM 371 Winter 2008 Chapter 16 - Capital Structure: Basic Concepts 1 / 24 Outline Background Capital Structure in Perfect Capital Markets Examples Leverage and Shareholder Returns Corporate Taxes 2 / 24
More informationOptimal Capital Structure
Capital Structure Optimal Capital Structure What is capital structure? How should a firm choose a debt-toequity ratio? The goal: Which is done by: Which is done by: Financial Leverage Scenario A B C Market
More informationPROFESSIONAL LEVEL EXAMINATION MARCH 2017 Mock Exam 1 FINANCIAL MANAGEMENT ANSWERS. Copyright ICAEW All rights reserved.
PROFESSIONAL LEVEL EXAMINATION MARCH 2017 Mock Exam 1 FINANCIAL MANAGEMENT ANSWERS Copyright ICAEW 2017. All rights reserved. BLANK PAGE 2 of 20 1 Marking guide 1.1 Calculations 7 Assumptions/explanations
More informationLeverage and Capital Structure The structure of a firm s sources of long-term financing
70391 - Finance Leverage and Capital Structure The structure of a firm s sources of long-term financing 70391 Finance Fall 2016 Tepper School of Business Carnegie Mellon University c 2016 Chris Telmer.
More informationCorporate Finance. Dr Cesario MATEUS Session
Corporate Finance Dr Cesario MATEUS cesariomateus@gmail.com www.cesariomateus.com Session 4 26.03.2014 The Capital Structure Decision 2 Maximizing Firm value vs. Maximizing Shareholder Interests If the
More informationCapital Structure. Outline
Capital Structure Moqi Groen-Xu Outline 1. Irrelevance theorems: Fisher separation theorem Modigliani-Miller 2. Textbook views of Financing Policy: Static Trade-off Theory Pecking Order Theory Market Timing
More informationOPTIMAL CAPITAL STRUCTURE & CAPITAL BUDGETING WITH TAXES
OPTIMAL CAPITAL STRUCTURE & CAPITAL BUDGETING WITH TAXES Topics: Consider Modigliani & Miller s insights into optimal capital structure Without corporate taxes è Financing policy is irrelevant With corporate
More informationCorporate Finance (Honors) Finance 100 Sections 301 and 302 The Wharton School, University of Pennsylvania Fall 2010
Corporate Finance (Honors) Finance 100 Sections 301 and 302 The Wharton School, University of Pennsylvania Fall 2010 Course Description The purpose of this course is to introduce techniques of financial
More informationACCA Paper F9 Financial Management. Mock Exam. Commentary, Marking scheme and Suggested solutions
ACCA Paper F9 Financial Management Mock Exam Commentary, Marking scheme and Suggested solutions 2 Suggested solutions Section A D Statement A is incorrect: Matching (not smoothing) is where liabilities
More informationAre Capital Structure Decisions Relevant?
Are Capital Structure Decisions Relevant? 161 Chapter 17 Are Capital Structure Decisions Relevant? Contents 17.1 The Capital Structure Problem.................... 161 17.2 The Capital Structure Problem
More informationModule 4: Capital Structure and Dividend Policy
Module 4: Capital Structure and Dividend Policy Reading 4.1 Capital structure theory Reading 4.2 Capital structure theory in perfect markets Reading 4.3 Impact of corporate taxes on capital structure Reading
More informationChapter 13 Capital Structure and Distribution Policy
Chapter 13 Capital Structure and Distribution Policy Learning Objectives After reading this chapter, students should be able to: Differentiate among the following capital structure theories: Modigliani
More informationUniversitat Pompeu Fabra
Universitat Pompeu Fabra Plan Docente Financial Management II (20689) Titulación: Grado en Administración y Dirección de Empresas / Grado en Economía Curso: Tercero Trimestre: Segundo (ADE/Economía) Número
More informationpreparetopassacca.com
ACCA Paper P4 Advanced Financial Management Revision Mock Examination June 2017 Answer Guide How to pass How to fail Health Warning! Attempt the examination under exam conditions BEFORE looking at these
More informationAdvanced Financial. Management. Advanced Financial Management. Specimen Exam applicable from September Strategic Professional Options
Strategic Professional Options Advanced Financial Management Specimen Exam applicable from September 2018 Time allowed: 3 hours 15 minutes This question paper is divided into two sections: Section A This
More informationInstitute of Chartered Accountant Ghana (ICAG) Paper 3.3 Advanced Financial Management
Institute of Chartered Accountant Ghana (ICAG) Paper 3.3 Advanced Financial Management Final Mock Exam 1 Marking scheme and suggested solutions DO NOT TURN THIS PAGE UNTIL YOU HAVE COMPLETED THE MOCK EXAM
More informationACCA. Paper P4. Advanced Financial Management June Revision Mock Answers
ACCA Paper P4 Advanced Financial Management June 2016 Revision Mock Answers To gain maximum benefit, do not refer to these answers until you have completed the revision mock questions and submitted them
More informationExaminer s report F9 Financial Management June 2010
Examiner s report F9 Financial Management June 2010 General Comments Successful candidates were able to demonstrate their wide understanding of the F9 syllabus and it was pleasing to see some very high
More informationEMBA in Management & Finance. Corporate Finance. Eric Jondeau
EMA in Management & Finance Corporate Finance EMA in Management & Finance Lecture 3: Capital Structure Modigliani and Miller Outline 1 The Capital-Structure Question 2 Financial Leverage and Firm Value
More informationFinancial reporting and analysis
Financial reporting and analysis CFA 二级重要知识点讲解 讲师 : 韩霄 1-11 MM theory 2-11 Capital Structure Theory Capital Structure Theory MM theory 1958 No taxes, no costs of financial distress MM theory 1963 With
More informationChapter 15. Topics in Chapter. Capital Structure Decisions
Chapter 15 Capital Structure Decisions 1 Topics in Chapter Overview and preview of capital structure effects Business versus financial risk The impact of debt on returns Capital structure theory, evidence,
More informationFinal Exam Finance for Premasters
Final Exam Finance for Premasters Course: Finance for Premasters SubjectCode: 323061 Date: 15 december 2008 Length: 2 hours Lecturer: Paul Sengmüller (154281) Telephone: 3041 (secretariaat Finance) Students
More informationPAPER No. 8: Financial Management MODULE No. 27: Capital Structure in practice
Subject Financial Management Paper No. and Title Module No. and Title Module Tag Paper No.8: Financial Management Module No. 27: Capital Structure in Practice COM_P8_M27 TABLE OF CONTENTS 1. Learning outcomes
More informationSOLUTION FINANCIAL MANAGEMENT MAY 2013
SOLUTION 1 a) A demerger results in the splitting up of a firm into smaller, legally separate firms. The financial benefits and disadvantages are largely dependent upon the individual situation. Among
More informationThe implied cost of capital of government s claim and the present value of tax shields: A numerical example
The implied cost of capital of government s claim and the present value of tax shields: A numerical example By M.B.J. Schauten and B. Tans M.B.J. Schauten is Assistant Professor in Finance, Erasmus University
More informationExaminer s report F9 Financial Management June 2015
Examiner s report F9 Financial Management June 2015 General Comments The F9 examination paper consists of Section A, with 20 multiple-choice questions worth two marks each, and Section B containing three
More informationLecture 23. Tuesday Apr 27 th. Financial Leverage
Lecture 23. Tuesday Apr 27 th Financial Leverage Balance Sheet Assets Land*! & Buildings*! Equipment*!! Machinery*!! Inventories*!!! Accounts Receivable*!!! Cash*!!! Liabilities Debt Secured* Unsecured
More informationThe Examiner's Answers F3 - Financial Strategy
The Examiner's Answers F3 - Financial Strategy Some of the answers that follow are fuller and more comprehensive than would be expected from a well-prepared candidate. They have been written in this way
More informationExaminer s report F9 Financial Management September 2017
Examiner s report F9 Financial Management September 2017 General comments The F9 Financial Management exam is offered in both computer-based (CBE) and paper-based (PBE) formats. The structure is the same
More informationThe Examiner's Answers Specimen Paper F3 - Financial Strategy
The Examiner's Answers Specimen Paper F3 - Financial Strategy SECTION A Answer to Question One Requirement (a) Appendix A 1. Assume constant exchange rate Project years 1 3 4 5 5 to 24 6 to 25 Calendar
More informationInvestment Appraisal
Investment Appraisal Introduction to Investment Appraisal Whatever level of management authorises a capital expenditure, the proposed investment should be properly evaluated, and found to be worthwhile
More informationGeneral comments This question had easily the highest percentage mark on the paper. Overall, the candidates performance was very good indeed.
MARK PLAN AND EXAMINER S COMMENTARY The marking plan set out below was that used to mark this question. Markers were encouraged to use discretion and to award partial marks where a point was either not
More informationThe Determinants of Capital Structure: Analysis of Non Financial Firms Listed in Karachi Stock Exchange in Pakistan
Analysis of Non Financial Firms Listed in Karachi Stock Exchange in Pakistan Introduction The capital structure of a company is a particular combination of debt, equity and other sources of finance that
More informationFinance 402: Problem Set 6 Solutions
Finance 402: Problem Set 6 Solutions Note: Where appropriate, the final answer for each problem is given in bold italics for those not interested in the discussion of the solution. 1. The CAPM E(r i )
More information80 Solved MCQs of MGT201 Financial Management By
80 Solved MCQs of MGT201 Financial Management By http://vustudents.ning.com Question No: 1 ( Marks: 1 ) - Please choose one What is the long-run objective of financial management? Maximize earnings per
More informationChapter 12 Cost of Capital
Chapter 12 Cost of Capital 1. The return that shareholders require on their investment in the firm is called the: A) Dividend yield. B) Cost of equity. C) Capital gains yield. D) Cost of capital. E) Income
More informationWrap-Up of the Financing Module
Wrap-Up of the Financing Module The Big Picture: Part I - Financing A. Identifying Funding Needs Feb 6 Feb 11 Case: Wilson Lumber 1 Case: Wilson Lumber 2 B. Optimal Capital Structure: The Basics Feb 13
More informationFINANCIAL MANAGEMENT
FINANCIAL MANAGEMENT PROFESSIONAL 2 EXAMINATION - APRIL 2009 NOTES: Section A - Answer all three questions. Section B - Answer two questions only. (If you provide answers to more questions than required
More informationFINA1082 FINANCIAL MANAGEMENT. Capital Structure I. Tutorial for Lecture 15
FINA1082 FINANCIAL MANAGEMENT Capital Structure I Tutorial for Lecture 15 A. Short Answer Questions A1. Chapter 17 Question 14 of BMA 10Edition MM totally ignore the fact that as you borrow more, you have
More informationF3 CIMA Q & A! CIMA F3 Workbook Questions & Solutions
CIMA F3 Workbook Questions & s Lecture 1 Financial Strategy Shareholder Wealth - Illustration 1 Year Share Price Dividend Paid 2007 3.30 40c 2008 3.56 42c 2009 3.47 44c 2010 3.75 46c 2011 3.99 48c There
More informationCorporate Finance. Dr Cesario MATEUS Session
Corporate Finance Dr Cesario MATEUS cesariomateus@gmail.com www.cesariomateus.com Session 3 20.02.2014 Selecting the Right Investment Projects Capital Budgeting Tools 2 The Capital Budgeting Process Generation
More informationBasic Finance Exam #2
Basic Finance Exam #2 Chapter 10: Capital Budget list of planned investment project Sensitivity Analysis analysis of the effects on project profitability of changes in sales, costs and so on Fixed Cost
More informationFINALTERM EXAMINATION Spring 2009 MGT201- Financial Management (Session - 2) Question No: 1 ( Marks: 1 ) - Please choose one What is the long-run objective of financial management? Maximize earnings per
More informationCorporate Financial Management. Lecture 3: Other explanations of capital structure
Corporate Financial Management Lecture 3: Other explanations of capital structure As we discussed in previous lectures, two extreme results, namely the irrelevance of capital structure and 100 percent
More informationBank Analysis Bank of Nova Scotia (BNS)
Bank Analysis Bank of Nova Scotia (BNS) Bus 413 D1.00 To: Professor Jalan November 25, 2002 Prepared By: Frank CHU 20005-6416 Bank Analysis Bank of Nova Scotia (BNS) Most data of this report are from the
More informationLECTURE 7 : CHAPTER 10 The Cost of Capital
LECTURE 7 : CHAPTER 10 The Cost of Capital Sources of capital Component costs WACC (Weighted Average Cost of Capital) Adjusting for flotation costs Adjusting for risk What sources of long-term capital
More informationMaybe Capital Structure Affects Firm Value After All?
Maybe Capital Structure Affects Firm Value After All? 173 Chapter 18 Maybe Capital Structure Affects Firm Value After All? Contents 18.1 Only Through Changes in Assets................... 173 18.2 Corporate
More informationAdvanced Corporate Finance
Introduction Advanced Corporate Finance Introduction Instructor: Nikunj Kapadia Office: Room 310 C Tel: 545 5643 Email: nkapadia@som.umass.edu Class Room: 108 Course Requirement Prerequisite: FINOPMGT
More informationTHE HONG KONG INSTITUTE OF CHARTERED SECRETARIES THE INSTITUTE OF CHARTERED SECRETARIES AND ADMINISTRATORS
THE HONG KONG INSTITUTE OF CHARTERED SECRETARIES THE INSTITUTE OF CHARTERED SECRETARIES AND ADMINISTRATORS International Qualifying Scheme Examination CORPORATE FINANCIAL MANAGEMENT PILOT PAPER Marking
More informationQuiz Bomb. Page 1 of 12
Page 1 of 12 Quiz Bomb Indicate whether the following statements are True or False. Support your answer with reason: 1. Public finance is the study of money management of individual. False. Public finance
More informationFinancial Distress Costs and Firm Value
1 2 I. Limits to Use of Debt According to MM Propositions with corporate taxes, firms should have a capital structure almost entirely composed of debt. Does it make sense in the real world? Why? Note 14
More information*Efficient markets assumed
LECTURE 1 Introduction To Corporate Projects, Investments, and Major Theories Corporate Finance It is about how corporations make financial decisions. It is about money and markets, but also about people.
More information