Wacc And Firm Value As A Function Of Leverage


WACC -*-Firm Value

While this illustration makes the choice of an optimal financing mix seem trivial, it obscures some real problems that may arise in its applications. First, an analyst typically does not have the benefit of having the entire schedule of costs of financing prior to an analysis. In most cases, the only level of debt about which there is any certainty about the cost of financing is the current level. Second, the analysis assumes implicitly that the level of cash flows to the firm is unaffected by the financing mix of the firm and, consequently, by the default risk (or bond rating) for the firm. While this may be reasonable in some cases, it might not in others. For instance, a firm that manufactures consumer durables (cars, televisions etc.) might find that its sales drop if its default risk increases because investors are reluctant to buy its products.

Retirement Planning For The Golden Years

Retirement Planning For The Golden Years

If mutual funds seem boring to you, there are other higher risk investment opportunities in the form of stocks. I seriously recommend studying the market carefully and completely before making the leap into stock trading but this can be quite the short-term quick profit rush that you are looking for if you am willing to risk your retirement investment for the sake of increasing your net worth. If you do choose to invest in the stock market please take the time to learn the proper procedures, the risks, and the process before diving in. If you have a financial planner and you definitely should then he or she may prove to be an exceptional resource when it comes to the practice of 'playing' the stock market.

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