Corporate Finance: Theory & Practice

25557 Corporate Finance: Theory & Practice

 

 

 

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Lecture 10 Topic – Optimal Financing Policy

 

  • Most financial managers measure debt ratios from their companies’ book balance sheets.  Many financial economists emphasize ratios from market-value balance sheets.
    1. Which is the right measure in principle?
    2. Does the trade-off theory propose to explain book or market leverage?
    3. Does the pecking-order theory propose to explain book or market leverage?

 

  • Financial distress:
    1. What are the costs of going bankrupt? Explain briefly.
    2. “A company can incur costs of financial distress without ever going bankrupt.” Explain how this can happen