18 How Much Should a Firm Borrow.pptVIP

Slides by Matthew Will Topics Covered Corporate Taxes and Value Corporate and Personal Taxes Cost of Financial Distress Pecking Order of Financial Choices C.S. Corporate Taxes Financial Risk - Risk to shareholders resulting from the use of debt. Financial Leverage - Increase in the variability of shareholder returns that comes from the use of debt. Interest Tax Shield- Tax savings resulting from deductibility of interest payments. C.S. Corporate Taxes Example - You own all the equity of Space Babies Diaper Co.. The company has no debt. The company’s annual cash flow is $1,000, before inter