[BU393] - Final Exam Guide - Everything you need to know! (67 pages long)
Document Summary
Arises from the fixed costs associated with production. A business that has a higher proportion of fixed costs and a lower proportion of variable costs is said to have used more operating leverage. With a high degree of financial leverage come high interest payments. Thus, highly levered firms are ones that have to make a lot of interest payments (usually as a result of having a high proportion of debt) A (cid:272)o(cid:373)pa(cid:374)(cid:455)"s (cid:448)alue: v = b + s b market value of debt s = market value of. Equity your value is based on these two factors and you must try to find a. Managers should choose the capital structure that maximized firm value, because this is most beneficial to the shareholders. Shareholders do not get value out of strategies that only look at their benefits, because they need the whole firm value to increase for them to gain any benefit.
