Part 5
Content
 Adjusted present values
 Financial decisions
 The Modigliani and Miller hypotheses
 Practical aspects of the financing decision
 Dividend policy
Knowledge checklist
able to understand the relationship between financing and investment decision;
Able to calculate an adjusted present value (APV);
Able to explain the fundamental issue with respect to financing decisions i.e. it is possible to increase the value of the business through it`s financing decisions;
Able to understand the MM capital structure hypotheses both with and without tax;
Able to explain the extensions to the basic MM analysis provided by Miller(personal tax) and Brealy and Myers(the costs of financial distress and agency costs);
Able to use the MM formula to calculate the value of a geared company together with the cost of equity and the WACC; Able to understand the practical aspects of the financing decision and to calculate the impact of financing decisions on both gearing (and it`s significance) and EPS; Able to explain and discuss the significance of the dividend irrelevancy hypothesis. |
