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Canada (161,962)
Economics (818)
ECON 2560 (71)
Chapter 16

THEORY OF FINANCE CHAPTER 16.docx

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Department
Economics
Course
ECON 2560
Professor
Nancy Bower
Semester
Summer

Description
THEORY OF FINANCE CHAPTER 16HOW BORROWING AFFECTS VALUE IN A TAXFREE ECONOMYLeft and right hand sides of a balance sheet must be equalValue of the fairms debt and equity can be used to valculatethe value of the future cash flows from the real assets and oeprationsoValue of those cash flows determines the value of the firm and therefore determines that aggregate value of all the firms outstanding debt and equity securitieswhen there are no taxes and well fucntioning capital markets exist the market value of a company doesnt depend on its capital structure When a company has no debt and all its oeprating income is paid as dividends to the shareholdersoExpected earnings and dividends per share are X but it is not certain
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