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Canada (162,168)
Commerce (1,696)
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3FA3-CH16.docx

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Department
Commerce
Course
COMMERCE 3FA3
Professor
Trevor Chamberlain
Semester
Winter

Description
Commerce 3FA3 Chapter 16 Financial leverage and capital structure policy DefinitionsMM Proposition 1 The value if the firm is independent of its capital structureMM Proposition II A firms cost of equity capital is a positive linear function as capital structure Business risk The equity risk that comes from the nature of the firms operating activitiesFinancial risk The equity risk that comes from the financial policy of the firm Interest tax shield The tax saving attained by a firm from interest expenseUnlevered cost of capital The cost of capital of a firm that has no debt Direct bankruptcy costs The costs that are directly associated with bankruptcy such as legal and administrative expenses Indirect bankruptcy costs The difficulties of running a business that is experiencing financial distressFinancial distress costs The direct and indirect costs associated with going bankrupt or experiencing f
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