외국 대학원 장학생 대학원 과정 발표 자료입니다.
corporate finance & capital markets

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Key Learnings Report

(502) Corporate Finance & Capital Markets

An all equity company (no debt) has a value equal to its return on assets only. As the company borrows, “tax shields” are created since interest on debt can be deducted from taxable income. Thus, a company with debt pays less taxes than an all equity company. Therefore, the part of the “pie” that belongs to the government is reduced and that part is transferred to shareholders. However, as a company borrows more, the company incurs “costs of financial distress”. At some point, these costs of financial distress begin to exceed the tax shield benefits, and the company’s market value begins to decline. This implies that there is an optimum capital structure for each company…