13 Sources of Financing: Debt and Equity
Debt and Equity On completion of this chapter, you will be able to: 1 Explain the differences among the three types of capital small businesses require: fixed, working, and growth 2 Describe the differences between equity capital and debt capital and the advantages and disadvantages of each
Financial Ratios eBook - Corporate Finance Institute
If the total debt of a business is worth $50 million and the total equity is worth $120 million, as per the above formula, debt-to-equity would be 0 42 In other words, the firm has 42 cents in debt for every dollar of equity A higher debt-equity ratio indicates a levered firm – a firm that is financed with debt Leverage
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Firm A’s equity gets all cash flows Firm B’s cash flows are split between its debt and equity with debt being senior to equity In all (i e , both) states of the world, the following are equal: ¾The payoff to Firm A’s equity ¾The sum of payoffs to Firm B’s debt and equity By value additivity, E(A) = D(B) + E(B)
EQUITY INVESTMENT GUIDE - CMPA
ries no debt, investors may de-duce that you are not seizing all available opportunities and not growing as rapidly as you could if you acquired debt and invested in new activities DEBT VS EQUITY In order to grow, entrepreneurs need to finance new activi-ties and this can be done with either debt or equity (or very large profit margins if you’re
WACC and APV - MIT OpenCourseWare
firm’s cash flows if the firm were 100 equity financed This rate is the expected return on equity if the firm were 100 To get it, you need to: Find comps, i e , publicly traded firms in same business Estimate their expected return on equity if they were 100
Private Equity 101 - Stanford University
How to generate returns in private equity: Multiple growth Earnings growth Paying down debt increases value of equity – remember the Antonio’s example? All else constant, selling a business at a higher multiple than you bought it for increases equity value Businesses are valued based on earnings potential (eg multiple method)
4 Levered and Unlevered Cost of Capital Tax Shield Capital
The proportion of each component of capital used by a firm determines the firm’s capital structure The company’s capital structure is often measured by debt-equity ratio, also called leverage ratio A company that has no debt is called an unlevered firm; a company that has debt in its capital structure is a levered firm
Financial Modeling: CAPM & WACC
project's (firm’s) cost of capital in which each category of capital is proportionately weighted • All sources of capital, including common stock, preferred stock, bonds, and any other long-term debt, are included in a WACC calculation • The WACC increases as the beta and rate of return on equity increase because an increase in WACC
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