Capital Structure and Leverage
Learning Objectives
After reading this chapter, students should be able to:
? Explain why big(p) structure insurance policy involves a trade-off betwixt risk and return, and list the quadruplet primary factors that influence capital structure decisions.
? Distinguish between a firms business risk and its fiscal risk.
? Explain how operating leverage contri andes to a firms business risk and conduct a breakeven analysis, complete with a breakeven chart.
? Define financial leverage and rationalize its effect on expected ROE, expected EPS, and the risk borne by stockholders.
? shortly explain what is meant by a firms optimal capital structure.
? Specify the effect of financial leverage on genus Beta using the Hamada equation, and transform this equation to calculate a firms unlevered beta, bU.
? Illustrate through a graph the premiums for financial risk and business risk at different debt levels.
? be given the assumptions under which Modigliani and Miller proved that a firms value is unaffected by its capital structure, then explain trade-off theory, signaling theory, and the effect of taxes and bankruptcy costs on capital structure.
? List a number of factors or possible considerations firms generally consider when making capital structure decisions.
? Briefly explain the extent that capital structure varies across industries, individualistic firms in each industry, and different countries.
Lecture Suggestions
This chapter is rather long, but it is also modular, hence sections buttocks be omitted without loss of continuity. Therefore, if you ar experiencing a time crunch, you could skip selected sections.
What we cover, and the way we cover it, can be take heedn by scanning the slides and Integrated Case solvent for Chapter 14, which appears at the end of this chapter solution. For other suggestions about the lecture, please see the Lecture Suggestions in Chapter 2, where we describe how we...If you want to get a full essay, order it on our website: Orderessay
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