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Chapter 15 - Chapter 15(pp 402 418 Assignment 4 The goal of...

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Chapter 15 (pp. 402 - 418) Assignment 4 The goal of the manager: Maximizing the value of the firm The relationship between firm value and stock price How to maximize value: The traditionalist’s approach A counter-example to traditionalist approach The effect of leverage on value: Modigliani-Miller (MM) Proposition I The effect of leverage on required equity return: Modigliani- Miller (MM) Proposition II Justification for equality between personal and corporate borrowing rate Example when inequality between rates occurs The concept of market value balance sheets (pp. 419 – 427) Assignment 6 Case: Central Express The basic paradigm: The pie chart Why the IRS treats interest more favorable than dividends The value of the tax shield The value of the levered firm: MM Proposition I The effect of leverage on required equity return: MM Proposition II Market value balance sheets Effect of leverage on stock prices 15.1 The Capital-Structure Question and the Pie Theory V=B+S
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