does debt policy matter

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1、confirmingpagesPART5CHAPTER"""""17PAYOUTPOLICYANDCAPITALSTRUCTUREDoesDebtPolicyMatter?!Afirm’sbasicresourceisthestreamofcashMM’sproposition1allowscompleteseparationofflowsproducedbyitsassets.Whenthefirmisfinancedinvestmentandfinancingdecisions.Itimpliesthatanyfirmentirelybycommonsto

2、ck,allthosecashflowsbelongcouldusethecapitalbudgetingprocedurespresentedtothestockholders.WhenitissuesbothdebtandequityinChapters5through12withoutworryingaboutwheresecurities,itsplitsthecashflowsintotwostreams,athemoneyforcapitalexpenditurescomesfrom.Inthoserelativelysafestreamthatg

3、oestothedebtholdersandchapters,weassumedall-equityfinancingwithoutreallyariskierstreamthatgoestothestockholders.thinkingaboutit.IfMMareright,thatisexactlytherightThefirm’smixofdebtandequityfinancingiscalledapproach.Ifthefirmusesamixofdebtandequityitscapitalstructure.Ofcoursecapitals

4、tructureisnotfinancing,itsoverallcostofcapitalwillbeexactlythejust“debtversusequity.”Therearemanydifferentsameasitscostofequitywithall-equityfinancing.flavorsofdebt,atleasttwoflavorsofequity(commonWebelievethatinpracticecapitalstructuredoesversuspreferred),plushybridssuchasconvertib

5、lematter,butweneverthelessdevoteallofthischapterbonds.ThefirmcanissuedozensofdistinctsecuritiesintoMM’sargument.Ifyoudon’tfullyunderstandthecountlesscombinations.ItattemptstofindtheparticularconditionsunderwhichMM’stheoryholds,youwon’tcombinationthatmaximizestheoverallmarketvalueoff

6、ullyunderstandwhyonecapitalstructureisbetterthanthefirm.another.ThefinancialmanagerneedstoknowwhatAresuchattemptsworthwhile?Wemustconsiderthekindsofmarketimperfectiontolookfor.possibilitythatnocombinationhasanygreaterappealForexample,thefirmmayinventsomenewsecuritythananyother.Perha

7、psthereallyimportantdecisionsthataparticularclienteleofinvestorsiswillingtobuyatconcernthecompany’sassets,anddecisionsaboutapremiumprice,therebyincreasingtheoverallmarketcapitalstructurearemeredetails—matterstobevalueofthefirm.(Weargue,however,thatsuchfinancialattendedtobutnotworrie

8、dabout.innovationsa