L_20_ - Chapter Outline Lecture 20 Chapter Organization The...

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Chapter Outline Lecture 20 Chapter Organization The Capital Structure Question (continue) Capital Structure without Taxes (continue) Capital Structure with Taxes
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Capital Structure, Cost of Capital, and the Value of the Firm What is the optimal capital structure? Optimal capital structure Optimal capital structure
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Effect of Leverage How EPS and ROE are affected after the firm changes its capital structure? When EBIT is high (low), financial leverage___________________. Financial Leverage ___________________________. The variability of EPS and ROE ____________________________. Leverage____________________.
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The cost of equity and financial leverage: Proposition II MM Prop. II R E = Cost of equity has two parts 1. 2.
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Taxes, the WACC, and Proposition II Debt-equity ratio, D/E Cost of capital (%) R D
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The CAPM, the SML, and Proposition II The effect of financing decisions on firm risk is reflected in
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L_20_ - Chapter Outline Lecture 20 Chapter Organization The...

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