RestructuringSimVO

RestructuringSimVO - Microsofts beta in June 2008: 0% 7.4%...

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Changing Capital Structure Changing Capital Structure Professor Susan White
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What happens to Capital Restructure Capital Restructure risk cost of equity when a company changes its capital structure? and
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Capital Restructure Capital Restructure What happens to risk and cost of equity when a company changes its capital structure? Balance Sheet icrosoft issued debt for the first time in its history in 2009 June 2008 June 2009 Short term debt 0 2,000,000 Long term debt 0 3,746,000 Total interest bearing debt 0 5,746,000 Shareholders equity 36,286,000 39,558,000
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Capital Restructure Capital Restructure Percent debt in the capital structure, 2008: What happens to risk and cost of equity when a company changes its capital structure? Percent debt in the capital structure, 2009:
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Unformatted text preview: Microsofts beta in June 2008: 0% 7.4% 0.8721 Capital Structure Capital Structure What happens to risk and cost of equity when a company changes its capital structure? L = Microsofts beta with new capital structure: Debt U Equity (1 -= 0.8721 5,746 [1 + 39,558 0.35 T )] New beta = 0.9544 Why? Microsoft is riskier [1 + (1 -)] Investors require higher return for higher risk Capital Restructure Capital Restructure What happens to risk and cost of equity when a company changes its capital structure? L = Microsofts beta with new capital structure: (1 -0.872 1 5,746 [1 + 39,558 0.35 )] New beta = 0.9544 Why? Microsoft is riskier...
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RestructuringSimVO - Microsofts beta in June 2008: 0% 7.4%...

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