tailieunhanh - Ebook Applied corporate finance (4th edition): Part 2

(BQ) Part 2 book "Applied corporate finance" has contents: Capital structure - The optimal financial mix; capital structure - the financing details; dividend policy; analyzing cash returned to stockholders; valuation - principles and practice. | Trim Size: 8in x 10in Damodaran V2 - 08/27/2014 2:29 . Find more at CHAPTER 8 CAPITAL STRUCTURE: THE OPTIMAL FINANCIAL MIX Learning Objectives . Use the operating income approach to determine the optimal financial mix for a firm. . Use cost of capital approaches to determine the optimal financial mix for a firm. . Use the adjusted present value approach to determine the optimal financial mix for a firm. . Use comparative analysis approaches to determine the optimal financial mix for a firm. . Compare the results of the various approaches to determining the optimal financial mix for sample firms. What is the optimal mix of debt and equity for a firm? In the last chapter, we looked at the qualitative trade-off between debt and equity, but we did not develop the tools we need to analyze whether debt should be 0%, 20%, 40%, or 60% of capital. Debt is always cheaper than equity, MAXIMIZE THE VALUE OF THE BUSINESS (FIRM) The Investment Decision Invest in the assets that earn a return greater than the minimum acceptable hurdle rate The hurdle rate should reflect the riskiness of the investment and the mix of debt and equity used to fund it The return should reflect the magnitude and the timing of the cash flows as well as all side effects The Financing Decision Find the right kind of debt for your firm and the right mix of debt and equity to fund your operations The optimal mix of debt and equity maximizes firm value The right kind of debt matches the tenor of your assets The Dividend Decision If you cannot find investments that make your minimum acceptable rate, return the cash to owners of your business How much cash you can return depends on current and potential investment opportunities How you choose to return cash to the owners will depend on whether they prefer dividends or buybacks 339 Page 339 Trim Size: 8in x 10in Damodaran V2 - 08/27/2014 2:29 . Find more at .