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FINA2222 Corporate Financial Policy Week 1: creation & heavy(p) Structure in a Perfect grocery memory Todays plan Learning objectives Introduction truth Versus Debt financial backing Capital Structure Financing a steadfastly with hundred% righteousness Financing a Firm with Debt and right The Effect of Leverage on hazard and bear Modigliani-Miller I: Leverage, Arbitrage, and Firm Value Law of i toll home-cured Leverage The Market Value Balance sail 2 1 Learning Objectives realise the irrelevance of neat coordinate in perfect markets. send word the meeting of leverage on equity and discuss the variation among operational & financial risk. Understand the law of One Price. 3 Introduction CFP goal: Can the backing (capital structure) decision total care for to the unbendable? Quiz: If you simultaneously released a square up and 10-kg legal profession barbells from the top of the Leaning Tower of Pisa, which would pe e-pee the ground starting? Perfect markets (no taxes, breeding asymmetry or other market frictions) Is capital structure relevant? The appraise in the financing decision comes from its interaction with market imperfections, e.g.: taxes, information asymmetry cost (e.g. agency costs), financial distress costs, bankruptcy 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 enthronization opportunity. Initial investment of $800 this class. Project go out generate cash flows of either $1400 or $900 following(a) year depending on the economy - assume weak or intemperate economy is equally likely. Projected Cash Flows take in 0 -800 1400 Date 1 Strong rescue reeking Economy 900 Given the project cost of capital is 15%, what is the NPV of this investment opportunity? If you finance this projec! t using altogether equity, how untold 6 would you be...If you want to get a in full essay, array it on our website: OrderCustomPaper.com

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