This preview shows page 1. Sign up to view the full content.
Unformatted text preview: expand its existing manufacturing capability. How would Jessica's proposal affect the company? The value of the company could increase or decrease. If the company is over-levered, paying off debt can lower the interest rate on debt, and decrease financial distress costs. If there are no financial distress costs, capital structure theory argues that increasing debt can increase the value of the company because of the interest tax shield. 3. Nolan favors a share repurchase. He argues that a repurchase will increase the company's P/E ratio, return on assets, and return on equity. Are his arguments correct? Yes he is correct, but the increase is irrelevant....
View Full Document
This note was uploaded on 04/29/2011 for the course FINANCE BA521 taught by Professor Mark during the Spring '11 term at Antelope Valley College.
- Spring '11