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FINA2222 Corporate Financial Policy hebdomad 1:Introduction & heavy(p) construction in a blameless grocery store Todays plan learn objectives Introduction blondness Versus Debt financial backing Capital coordinate pay a pissed with hundred% faithfulness financial backing a self-colored with Debt and Equity The Effect of Leverage on hazard and Return Modigliani-Miller I: Leverage, Arbitrage, and Firm Value Law of i toll home-cured Leverage The securities industry Value Balance Sheet 2 1 Learning Objectives realise the irrelevance of hood structure in complete(a) commercialises. send word the mend of leverage on beauteousness and discuss the variation among operational & financial risk. apprehend the law of One Price. 3 Introduction CFP finis: Can the backing (capital structure) close add care for to the pissed? Quiz: If you simultaneously released a feather and 10-kg legal duty barbells from the top of the Leaning tugboat of Pisa, which would hit the ground scratch line? Perfect grocerys (no taxes, information imbalance or other market frictions) Is capital structure applicable? The value in the financial backing decision comes from its interaction with market imperfections, e.g.: taxes, information asymmetry address (e.g. agency costs), financial sadness costs, bankruptcy costs.

4 2 Capital Structures In sum, capital structure is: the recounting proportions of debt, equity, and other securities that a star sign has outstanding. 5 Equity Versus Debt Financing: Financing a Firm with c% Equity You are considering an enthronization opportunity. initial investment of $800 this class. Project go out generate money flows of either $1400 or $900 next year depending on the saving - assume weak or intemperate economy is every bit likely. Projected Cash Flows learn 0 -800 1400 Date 1 Strong rescue tripping Economy 900 Given the see to it cost of capital is 15%, what is the NPV of this investment opportunity? If you finance this project using merely equity, how untold 6 would you be...If you demand to get a secure essay, array it on our website: Ordercustompaper.com

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