Session 19: Optimal Financing Mix - Determinants and Drivers

In this class, we started by tying up loose ends on the cost of capital approach, starting with why moving to the optimal changes the value of a business (hint: it is all in the tax code) and then looking at how sensitive the optimal debt ratio is to changes in operating income or rating constraints. We also looked at enhancements to the approach, where we incorporated indirect bankruptcy costs in the analysis. Finally, we examined the determinants of the optimal. In particular, it was differences in tax rates, cash flows (as a percent of value) and risk that determined why some companies have high optimal debt ratios and why some have low or no debt capacity. Next session, we will wind up the analysis of the optimal debt ratio and then move on to whether to move to that optimal, and if yes, how quickly. In the meantime, you can catch up on the project by taking your company and putting the numbers into the spreadsheet at the link below:
https://www.stern.nyu.edu/~adamodar/pc/capstru.xlsx
Remember to check the iteration box in Excel calculation preferences to make sure that it is checked.

Slides: https://pages.stern.nyu.edu/~adamodar/podcasts/cfspr23/session19slides.pdf
Post class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session19test.pdf
Post class test solution: https://pages.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session19soln.pdf

Видео Session 19: Optimal Financing Mix - Determinants and Drivers канала Aswath Damodaran