Management and Organizational Studies 2310A/B Chapter Notes - Chapter 16: Cash Flow, Financial Distress, Agency Cost

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 2310A/B
• Professor: Stacey Hann

Document Summary

Chapter 16 financial leverage and capital structure policy. The capital structure question: examine how changes in capital structure affect the value of the firm, all else being equal, capital restructuring involves changing the amount of leverage a firm has without changing the firms assets. Increase leverage by issuing debt and repurchasing outstanding shares: decrease leverage by issuing new shares and retiring outstanding debt. Choosing a capital structure: what is the primary goal of financial managers, choose the capital structure that will maximize stockholder wealth, maximize stockholder wealth by maximizing firm value or minimizing wacc. The effect of financial leverage: how does leverage affect the eps and roe of a firm, when we increase the amount of debt financing, we increase the fixed interest expense. If we have a really good year, then we pay our fixed cost and we have more left over for our stockholders.