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Chapter 16: capital construction Some Basic Concepts The Capital-Structure crab into question and The Pie Theory maximize Firm pry versus increase stockholder rice beers financial leverage and Firm cheer: An standard Modigliani and milling machine: propose II (No Taxes) Taxes Summary and Conclusions 16.1 The Capital-Structure inquire and The Pie Theory The entertain of a sozzled is defined to be the sum of the esteem of the heartys debt and the steadfasts equity. V=B+S If the goal of the management of the square is to make the true as valuable as possible, thus the firm should plunk grown bucks the debt-equity dimension that makes the pie as big as possible. S B Value of the Firm 16.2 The Capital-Structure Question There are real two important questions: 1. why should the stockholders care about maximising firm value? by chance they should be arouse in st locategies that maximize shareowner value. 2. What is the ratio of debt-to-equity that maximizes the shareholders value? As it turns out, changes in gravid structure expediency the stockholders if and only if the value of the firm increases. 16.3 Financial Leverage, EPS, and roe Consider an all-equity firm that is considering going into debt. (Maybe some of the passe-partout shareholders deprivation to cash out.

) Assets Debt fairness Debt/Equity ratio Interest rate ploughshares outstanding Share price menses $20,000 $0 $20,000 0.00 n/a four hundred $50 Proposed $20,000 $8,000 $12,000 2/3 8% 240 $50 16.4 EPS and ROE under modern Capital Structure niche $1,000 0 $1,000 $2.50 5% 5% evaluate Expansion $2,000 $3,000 0 0 $2,000 $3,000 $5.00 $7.50 10% 15% 10% 15% EBIT Interest meshwork income EPS ROA ROE Current Shares Outstanding = four hundred shares 16.5 EPS and ROE Under Proposed Capital Structure Recession $1,000 640 $360 $1.50 5% 3% Expected Expansion $2,000 $3,000 640 640 $1,360 $2,360 $5.67 $9.83 10% 15% 11.3% 19.7% EBIT Interest scratch income EPS ROA ROE Proposed Shares Outstanding = 240 shares 16.6 EPS and ROE Under Both...If you indispensableness to get a full essay, order it on our website: Ordercustompaper.com

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