Chap. 13 - Capital Structure Decisions

Business Risk - uncertainty inherent in return on assets (ROA)

1. Demand Variability
2. Sales Price Variability
3. Input Cost Variability
4. Ability of adjust output prices
5. Ability to develop new products
6. Extent to which costs are fixed: operating leverage

Operating Leverage (Business Risk) - Slides (2-6)

Financial Leverage (Financial Risk)  - Slides (7-9)

Capital Structure Theory (WACC) - Slides ([18], [21])

1. Effect of Taxes
2. Effect of Bankruptcy Costs
3. Trade Off Theory
4. Signaling Theory
5. Using Debt to Constrain Managers

Setting the Target Capital Structure - Slides (44-45)