FIN 401 Study Guide - Midterm Guide: Capital Budgeting, Sole Proprietorship, Agency Cost
23 Apr 2013
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Mix of lt debt and equity to finance. Problem makes decisions to benefit own benefit not for principles. Chapter 9 npv > 0 accept project nvp < 0 reject project payback rule management sets max time for payback (set i% to 0) discounted payback (set i% to r) Chapter 14- cost of capital chapter 10- capital budgeting. Capital structure: mix if different securities issued by the firm to finance its operations. Altering this can change the cost of capital/ market value of the firm= max sh wealth. Financial leverage: extent in which a firm relies on debt. Static theory: additional debt to offset increase likelihood of financial distress. Optimal d/e where wacc is min so v is max. Trusts: operating as a trust rather than a corporation. Taxes introduces trusts started to borrow and buy back. Investors will do the opposite of firms cap restructure action to achieve desired cf. More $ then you want: buy shares.
