FINC2012 Week 6 - FINC 2012 Corporate Finance II Amy Kwan...

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BUSINESS SCHOOL FINC 2012 Corporate Finance II Amy Kwan
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BUSINESS SCHOOL Chapters 17 & 18: Capital Structure I
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Lecture outline 1. Introduction 2. Perfect capital markets (capital structure irrelevancy) i. Leverage and firm value (MM Proposition I) - Homemade leverage ii. Leverage and cost of capital (MM Proposition II) iii. Leverage and beta 3. Imperfect capital markets (capital structure relevancy) i. Debt and taxes (basic) - Interest tax shield (MM Proposition I with taxes) ii. Bankruptcy and financial distress 4. Trade-off theory 5. Debt and taxes (advanced) i. Classical tax system ii. Imputation tax system 3
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