《财务管理》课程PPT教学课件（英文版）Chapter 16 Planning the Firm's Financing Mix

Chapter 16: Planning the Firm's Financing Mix How do we want to finance our firm's assets? 口Debt 口 Preferred equity」 Preferred o 2002. Prentice Hall. nc

Chapter 16: Planning the Firm’s Financing Mix How do we want to finance our firm’s assets? Debt Preferred Equity © 2002, Prentice Hall, Inc

Balance sheet Current Current Assets Liabilities Debt and Fixed Preferred Assets Shareholders' Equity

Balance Sheet Current Current Assets Liabilities Debt and Fixed Preferred Assets Shareholders’ Equity

Balance sheet Current Current Assets Liabilities Debt and Fixed Preferred Assets Shareholders' Equity

Balance Sheet Current Current Assets Liabilities Debt and Fixed Preferred Assets Shareholders’ Equity

Balance sheet Current Current Assets Liabilities Debt and Financial Fixed Preferred Structure Assets Shareholders? Equity

Balance Sheet Current Current Assets Liabilities Debt and Fixed Preferred Assets Shareholders’ Equity Financial Structure

Balance sheet Current Current Assets Liabilities Debt and Fixed Preferred Assets Shareholders Equity

Balance Sheet Current Current Assets Liabilities Debt and Fixed Preferred Assets Shareholders’ Equity

Balance sheet Current Current Assets Liabilities Debt and Fixed Preferred Capital Assets Structure Shareholders? Equity

Balance Sheet Current Current Assets Liabilities Debt and Fixed Preferred Assets Shareholders’ Equity Capital Structure

Why is capital structure Important? 1)Leverage: higher financial leverage means higher returns to stockholders but higher risk due to interest payments. 2)Cost of Capital: Each source of financing has a different cost. Capital structure affects the cost of capital 3)The Optimal Capital Structure is the one that minimizes the firms cost of capital and maximizes firm value

Why is Capital Structure Important? • 1) Leverage: higher financial leverage means higher returns to stockholders, but higher risk due to interest payments. • 2) Cost of Capital: Each source of financing has a different cost. Capital structure affects the cost of capital. • 3) The Optimal Capital Structure is the one that minimizes the firm’s cost of capital and maximizes firm value

What is the Optimal capital Structure? Ina“ perfect world” environment with no taxes, no transaction costs and perfectly efficient financial markets, capital structure does not matter This is known as the Independence hypothesis: firm value is independent of capital structure

What is the Optimal Capital Structure? • In a “perfect world” environment with no taxes, no transaction costs and perfectly efficient financial markets, capital structure does not matter. • This is known as the Independence hypothesis: firm value is independent of capital structure

Independence Hypothesis Firm value does not depend on capital structure

Independence Hypothesis • Firm value does not depend on capital structure

Independence Hypothesis Cost of Capital kc= cost of equity kd= cost of debt ko= cost of capital 0%o debt financial leverage 100%debt

Cost of Capital kc 0% debt financial leverage 100%debt . kc = cost of equity kd = cost of debt ko = cost of capital Independence Hypothesis