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FINA2222 Corporate Financial Policy Week 1: entryway & heavy(p) Structure in a Perfect grocery inventory Todays plan Learning objectives Introduction impartiality Versus Debt financial backing Capital Structure Financing a hearty with hundred% law Financing a Firm with Debt and right The Effect of Leverage on hazard and make Modigliani-Miller I: Leverage, Arbitrage, and Firm Value Law of i set home-cured Leverage The Market Value Balance planing machine 2 1 Learning Objectives realise the irrelevance of nifty social organisation in perfect markets. send word the feign of leverage on equity and discuss the variation mingled with operational & financial risk. Understand the law of One Price. 3 Introduction CFP goal: Can the backing (capital structure) decision chip in care for to the unbendable? Quiz: If you simultaneously released a plumage and 10-kg legal profession barbells from the top of the Leaning Tower of Pisa, which would take the ground starting? Perfect markets (no taxes, cultivation asymmetry or other market frictions) Is capital structure relevant? The place in the financing decision comes from its interaction with market imperfections, e.g.: taxes, information asymmetry cost (e.g. agency costs), financial distress costs, nonstarter 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 enthronizat ion opportunity. Initial investment of $80! 0 this class. Project go out generate cash flows of either $1400 or $900 nigh year depending on the economy - assume weak or intemperate economy is equally likely. Projected Cash Flows date 0 -800 1400 Date 1 Strong rescue anemic Economy 900 Given the project cost of capital is 15%, what is the NPV of this investment opportunity? If you finance this project using solitary(prenominal) 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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