Financial Distress Games

gt Cash In and Run gt Playing for Time gt Bait and Switch Trade-off Theory - Theory that capital structure is based on a trade-off between tax savings and distress costs of debt. Pecking Order Theory - Theory stating that firms prefer to issue debt rather than equity if internal finance is insufficient. 2. Issuing common stock drives down stock prices repurchase increases stock prices. 3. Issuing straight debt has a small negative impact.

FCF and PV

Given the cash flows for Concatenator Manufacturing Division, calculate the PV of near term cash flows, PV horizon value , and the total value of the firm. r 10 and g 6 PV business PV FCF PV horizon value Brealey and Myers Sixth Edition Why Net Present Value Leads to Better Investment Decisions than Other Criteria

Year 0 Year 1 150000 100000

Assume that the cash flows from the construction and sale of an office building is as follows. Given a 7 required rate of return, create a present value worksheet and show the net present value. .935 -100,000 - 93,500 .873 300,000 261,900 Total 18,400 Sometimes there are shortcuts that make it very easy to calculate the present value of an asset that pays off in different periods. These tolls allow us to cut through the calculations Perpetuity - Financial concept in which a cash flow is...