managerial entrenchment​ theory

According to the managerial entrenchment​ theory, managers choose capital structure so as to preserve their

control of the firm. On the one​ hand, debt is costly for managers because they risk losing control in the event of default. On the other​ hand, if they do not take advantage of the tax shield provided by​ debt, they risk losing control through a hostile takeover. Suppose a firm expects to generate free cash flows of $ 87 million per​ year, and the discount rate for these cash flows is 12 %. The firm pays a tax rate of 35 %. A raider is poised to take over the firm and finance it with $ 620 million in permanent debt. The raider will generate the same free cash​ flows, and the takeover attempt will be successful if the raider can offer a premium of 26 % over the current value of the firm. According to the managerial entrenchment​ hypothesis, what level of permanent debt will the firm​ choose?

Don't use plagiarized sources. Get Your Custom Essay on
managerial entrenchment​ theory
Just from $13/Page
Order Essay
Calculate your order
Pages (275 words)
Standard price: $0.00
Client Reviews
Our Guarantees
100% Confidentiality
Information about customers is confidential and never disclosed to third parties.
Original Writing
We complete all papers from scratch. You can get a plagiarism report.
Timely Delivery
No missed deadlines – 97% of assignments are completed in time.
Money Back
If you're confident that a writer didn't follow your order details, ask for a refund.

Calculate the price of your order

You will get a personal manager and a discount.
We'll send you the first draft for approval by at
Total price:
Power up Your Academic Success with the
Team of Professionals. We’ve Got Your Back.
Power up Your Study Success with Experts We’ve Got Your Back.
error: Content is protected !!
Live Chat+1(978) 822-0999EmailWhatsApp

Order your essay today and save 20% with the discount code GOODESSAY