2 nd Midterm Review Dr. Bader Alhashel. Chapter 14 Capital Structure & Leverage Book, Market, or...
-
Upload
cuthbert-williamson -
Category
Documents
-
view
212 -
download
0
Transcript of 2 nd Midterm Review Dr. Bader Alhashel. Chapter 14 Capital Structure & Leverage Book, Market, or...
![Page 1: 2 nd Midterm Review Dr. Bader Alhashel. Chapter 14 Capital Structure & Leverage Book, Market, or “Target” Weights? – Capital – Capital structure – Optimal.](https://reader035.fdocuments.in/reader035/viewer/2022080914/56649cef5503460f949be20a/html5/thumbnails/1.jpg)
2nd Midterm Review
Dr. Bader Alhashel
![Page 2: 2 nd Midterm Review Dr. Bader Alhashel. Chapter 14 Capital Structure & Leverage Book, Market, or “Target” Weights? – Capital – Capital structure – Optimal.](https://reader035.fdocuments.in/reader035/viewer/2022080914/56649cef5503460f949be20a/html5/thumbnails/2.jpg)
Chapter 14 Capital Structure & Leverage
• Book, Market, or “Target” Weights?– Capital– Capital structure– Optimal capital structure
• Business & Financial Risk– Factors that affect business risk– Operating leverage– Operating break-even– Financial leverage
![Page 3: 2 nd Midterm Review Dr. Bader Alhashel. Chapter 14 Capital Structure & Leverage Book, Market, or “Target” Weights? – Capital – Capital structure – Optimal.](https://reader035.fdocuments.in/reader035/viewer/2022080914/56649cef5503460f949be20a/html5/thumbnails/3.jpg)
Chapter 14 Capital Structure & Leverage
• Determining the Optimal Capital Structure– WACC & Capital Structure Changes– The Hamada equation– Unlevered Beta– The optimal capital structure
![Page 4: 2 nd Midterm Review Dr. Bader Alhashel. Chapter 14 Capital Structure & Leverage Book, Market, or “Target” Weights? – Capital – Capital structure – Optimal.](https://reader035.fdocuments.in/reader035/viewer/2022080914/56649cef5503460f949be20a/html5/thumbnails/4.jpg)
Chapter 14 Capital Structure & Leverage
• Capital structure theory– Modigliani & Miller Irrelevance Theory– The effect of taxes– The effect of potential bankruptcy– Trade-off theory– Signaling theory
• Asymmetric information• Signal• Reserve borrowing capacity
– Using debt financing to constrain managers– Pecking order hypothesis
![Page 5: 2 nd Midterm Review Dr. Bader Alhashel. Chapter 14 Capital Structure & Leverage Book, Market, or “Target” Weights? – Capital – Capital structure – Optimal.](https://reader035.fdocuments.in/reader035/viewer/2022080914/56649cef5503460f949be20a/html5/thumbnails/5.jpg)
Chapter 14 Capital Structure & Leverage
• Degree of Leverage– Degree of operating leverage– Degree of financial leverage– Degree of total leverage
![Page 6: 2 nd Midterm Review Dr. Bader Alhashel. Chapter 14 Capital Structure & Leverage Book, Market, or “Target” Weights? – Capital – Capital structure – Optimal.](https://reader035.fdocuments.in/reader035/viewer/2022080914/56649cef5503460f949be20a/html5/thumbnails/6.jpg)
Chapter 15 Distributions to Shareholders
• Dividends versus capital gains– Dividend irrelevance theory– Reasons some investors prefer dividends• Bird-in-the-hand fallacy
– Reasons some investors prefer capital gains• Other dividend policy issues– Signaling hypothesis– Clientele effect• Catering theory
![Page 7: 2 nd Midterm Review Dr. Bader Alhashel. Chapter 14 Capital Structure & Leverage Book, Market, or “Target” Weights? – Capital – Capital structure – Optimal.](https://reader035.fdocuments.in/reader035/viewer/2022080914/56649cef5503460f949be20a/html5/thumbnails/7.jpg)
Chapter 15 Distributions to Shareholders
• Establishing the dividend policy– The residual dividend model– Payment procedures
• Stock dividends & stock splits– Effect of stock prices
• Stock repurchases– The effects of stock repurchases– Advantages of repurchases– Disadvantages of repurchases– Conclusions on stock repurchases