I need help with discussion Evaluating Long-Term Finance and Capital Structure

Instructions

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Select and answer two (2) topics from the list below.  In addition (and on a separate day), for each topic selected to answer, students will be required to respond to at least one peer’s post within that SAME topic. For example, if you choose topic 1 and 3, you must reply to at least one peer who answered topic 1 AND one peer who answered topic 3.

Topic 1  This week, we have learned about two different cost of equity estimation measures (Dividend Growth Model (DGM) and the Security Market Line (SML) approach.  What are the advantages of using each of these methods for determining the cost of equity capital? What are the disadvantages? What specific pieces of information do you need to determine the cost of equity using each model?Note: Please be sure to answer these questions in detail for the DGM model as well as the SML approach. Failure to only address one model/approach will result in half credit for this topic. 

Topic 2  What is Capital Structure and how important it is? What is the basic goal of financial management with regard to capital structure? How is the cost of capital related to capital structure?

  • Topic 3  How do you determine the appropriate cost of debt for a company?  Does it make a difference if the company’s debt is privately placed as opposed to being publicly traded?  How would you estimate the cost of debt for a firm whose only debt issues are privately held by institutional investors?
  • Topic 4 What is financial leverage and what is its impact on stockholders? Is there an easily identifiable debt-equity ratio that will maximize the value of a firm (explain why or why not)?

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