Chapter 26
Analysis of Capital Structure
Theory
1
Topics in Chapter
MM models, with and without
corporate taxes
Miller model, with corporate and
personal taxes
Extension to MM when there is
growth and the tax shield is risky
Equity as an option
2
Determin
CHAPTER 16
Working Capital Management
1
Topics in Chapter
Alternative current operating assets
investment and financing policies
Cash, inventory, and A/R
management
Accounts payable management
Short-term financing
Bank loans, their costs, and
commercial p
Chapter 15
Capital Structure Decisions
1
Topics in Chapter
Overview and preview of capital
structure effects
Business versus financial risk
The impact of debt on returns
Capital structure theory, evidence,
and implications for managers
Example: Choosing t
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Power Point Presentation designed by Dr. Sylvia C. Hudgins for Finance 323 at ODU
What are the basic policy elements of
financial planning?
Investment in new assets determined by capital
budgeting decisions
Degree of financial leverage determined by
c
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Power Point Presentation designed by Dr. Sylvia C. Hudgins for Finance 323 at ODU
Relevant Cash Flows
The cash flows that should be included in a
capital budgeting analysis are those that
will only occur if the project is accepted
These cash flows are
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Power Point Presentation designed by Dr. Sylvia C. Hudgins for Finance 323 at ODU
Capital Budgeting Concepts
Capital Budgeting - deciding which projects add value to the firm.
Basic components of capital budgeting decisions.
Estimate future expected c
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Power Point Presentation designed by Dr. Sylvia C. Hudgins for Finance 323 at ODU
Required Return
2
The required return is the same as the
appropriate discount rate and is based on
the risk of the cash flows
We need to know the required return for an
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Power Point Presentation designed by Dr. Sylvia C. Hudgins for Finance 323 at ODU
Stock Quote
YTD 52 Weeks
%CHG Hi Lo
24.3
12.7
5.9
4.7
425029
362525
238820
725 550
Price Change from
Ticker Symbol
2
Previous Day
Volume of Trading
Yld
Stock Sym Div %
Q
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Power Point Presentation designed by Dr. Sylvia C. Hudgins for Finance 323 at ODU
General Valuation
2
Book Value
Stated value on the firms Balance Sheet
Market Value
The price for the asset at any given time that is determined by supply and demand
Ch 6
Risk, Return, and CAPM
Asset Pricing Models
Capital Asset Pricing Model (CAPM)
Arbitrage Pricing Theory( APT)
Fama-French 3- Factor Model
Capital Asset Pricing Model
(CAPM)
Assumptions
Capital Market Line (CML)
Security Market Line (SML)
Limitatio
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Power Point Presentation designed by Dr. Sylvia C. Hudgins for Finance 323 at ODU
What is Finance?
The Four Basic Areas of Finance
Corporate Finance
Investments
Financial Markets & Institutions
International Finance
2
What is the focus of corpor
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Power Point Presentation designed by Dr. Sylvia C. Hudgins for Finance 323 at ODU
2
Non-Annual Compounding
All equations and calculator solutions thus far have
assumed compounding occurs ONCE a year.
Example: Deposit $1,000 at 10% nominal annual inte
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Power Point Presentation designed by Dr. Sylvia C. Hudgins for Finance 323 at ODU
Evaluating Financial Performance
Why?
Evaluate the success of an
ongoing business
Determine weaknesses of an
ongoing business
Compare current performance
with past perfo
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Power Point Presentation designed by Dr. Sylvia C. Hudgins for Finance 323 at ODU
Compound Value
Parameters:
Interest rate (i) [The text uses r in notation]
Amount that is invested, present value (PV)
Time money remains invested (n)
Future value of th