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Capital StructureYou are a new recruit in the finance division of LargeCompany Plc. Your finance director has asked you to review the company's capital structure when the amount of debt is changed. She has provided you following information from last year annual report
in '000
Short Term Debt/Current Portion of Long Term Debt
£1,700,000
Long Term Debt
£9,700,000
Total Equity
£18,000,000
Shares Outstanding
1,700,000
Further, you collected following market information from the New Financial Times.
Cost of unlevered equity is 10 %.
You would like to show your understanding of capital structure that you learnt in your corporate finance course in the MSc Finance and Investment programme at London School of Business and Finance. In particular, you want to demonstrate
A) in a perfect capital market, a firm's choice of capital structure is unimportant.B) in "real world" market imperfections like taxes can not be ignored. As interest payments create a valuable tax shield, the stock price should increase if firm decides to increase its debt i.e. higher leverage higher firms value.C) your knowledge of existing literature on capital structure theories .
For additional information check the attached file.
Attachment:- Corporate-Finance-Assignment.rar
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