《财务管理专业英语》教学课件09.pptVIP

9.1 The Choices: Types of Financing 9.2 The Financing Mix 9.3 Understanding Financial Risk 9.4 Capital Structure and the Value of a Firm 9.5 Checklist for Capital Structure Decisions THE CHOICES: TYPES OF FINANCING Debt or Equity? Equity Owner’s Equity Venture Capital and Private Equity Common Stock Warrants Contingent Value Rights THE CHOICES: TYPES OF FINANCING Debt or Equity? Debt Bank debt Bonds Leases THE CHOICES: TYPES OF FINANCING Debt or Equity? Hybrid Securities Convertible Bond Preferred Stock THE FINANCING MIX The capital structure decision involves determining a firm’s financing mix. Capital structure is the mix of long-term sources of funds used by the firm. UNDERSTANDING FINANCIAL RISK Business risk——the volatility of operating income, caused by the nature of the firm’s business Financial risk——When firms borrow, they incur financial risk ? Borrowing increases the risk of default for a firm. Interest and principal payments on debt are legal obligations for the firm. Failure to meet these payments in a timely manner may lead to default and eventual bankruptcy for the firm. ? The interest and principal payments associated with borrowing increase the volatility of a firm’s earnings per share and its return on equity. CAPITAL STRUCTURE AND THE VALUE OF A FIRM The Modigliani-Miller Theorem CAPITAL STRUCTURE AND THE VALUE OF A FIRM The MM Theorem in the Real World Does the MM theorem hold in the real world? Probably not. Miller was quoted later as saying: The view that capital structure is literally irrelevant or that “nothing matters” in corporate finance, though sometimes attributed to us(and tracing perhaps to the very provocative way we made our point), is far from what we ever actually said about the real world applications of our theoretical propositions. CAPITAL STRUCTURE AND THE VALUE OF A FIRM The MM Theorem in the Real World The Modigliani-Miller Theorem with Corporate Taxes——The value of a levered firm is the value o