FIN571 Argosy University Leverage Implications of Debt Financing Paper

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Business Finance

FIN571

Argosy University

Description

Instructions

Write an assessment in which you address the following problems/questions:

  1. Evaluate the leverage implications of debt financing choices. You should include in your discussion the decomposition of ROE model. There are also some graphical analyses that should be used in showing the leverage implications for EPS. You should develop some numerical illustrations to argue your points.
  2. Critique the capital structure theory by explaining the conditions with and without taxes as well as the implications of bankruptcy costs. There should be the development of graphical illustrations of the arguments. Include a discussion of signaling theory, the constraining managers’ theory, the pecking order hypotheses, and the windows of opportunity theory.
  3. Compare and contrast the actual debt choices that firms tend to make, including how the choices seem to adjust across industries. Describe why you believe that some industries make use of a lot of debt, while others use very little.

Support your paper with at least three (3) resources. In addition to these specified resources, other appropriate scholarly resources, including older articles, may be included. Your paper should demonstrate thoughtful consideration of the ideas and concepts presented in the course by providing new thoughts and insights relating directly to this topic.

Your response should reflect scholarly writing and current APA standards. Be sure to adhere to Northcentral University's Academic Integrity Policy.

Length: 5-7 pages (not including title and reference pages)

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Explanation & Answer

Your assignment is complete

Outline for corporate finance
Title: assessment; corporate finance
1st paragraph
Gives a brief discussion on financing choices
2nd, 3rd, 4th paragraphs
Gives a discussion on the implications of debt financing choices
5th, 6th, 7th paragraphs
Provides a critique of the capital structure
Last paragraph
Gives a discussion on comparison of debt choices


Running Head: ASSESSMENT

1

Assessment
Student’s Name
University Name
Course Name
Date

ASSESSMENT

2
Leverage Implications of Debt Financing

Businesses are faced with two financing choices: debt and equity financing choices. Few
businesses will survive without any form of financing hence the need for either debt or equity
financing. Equity financing means selling a certain stake of the company to investors that hope to
have a share in the future profits of the business. Debt financing on the other hand is the use of
finances from outside sources which are repaid plus the interest of the funds borrowed (Eugene
& Joel, 2009). Debt financing involves borrowing loans from banks, and issuing debentures and
bonds. Leverage refers to debt availability in the capital structure of a business.
A company’s capital structure comprise of owner’s funds and debt. The two financing
choices: debt and equity have different implications on a firm. There is a fixed repayment
commitment of the principal amount borrowed and the interest. (Eugene & Joel, 2009) point out
that the firm’s earnings are affected by debt choices as earnings t...


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