Capital StructureLocked: included in All Access

How companies choose their mix of debt and equity: calculating and interpreting the weighted-average cost of capital, how the business model and life-cycle stage set the amount and type of financing, which market and issuer-specific factors drive the costs of debt and equity, the Modigliani-Miller propositions with and without taxes, the costs of financial distress, and how optimal and target capital structures, the pecking order and agency costs shape real financing decisions.

1. 1. The cost of capital and WACCA company's cost of capital is the return its lenders and shareholders require, blended into one weighted-average rate that becomes the hurdle every new investment must clear.Video · 6 minLocked: included in All Access14 min
2. 2. How much financing, and what kind: business model and life cycleThe business model decides how much capital a company needs, and its stage in the life cycle decides how much of that can be debt: cash-burning startups rely on equity, mature cash generators borrow cheaply.Locked: included in All Access13 min
3. 3. What drives the costs of debt and equityInvestors price debt and equity from the same cash flows, so the costs of both rise and fall together with market conditions, industry exposure and the issuer's own sales risk, operating leverage, financial leverage and collateral.Locked: included in All Access14 min
4. 4. Modigliani-Miller without taxes: capital structure irrelevanceIn a perfect market with no taxes, a firm's value depends only on its cash flows: swapping equity for cheaper debt raises the cost of equity just enough to leave WACC and firm value unchanged.Video · 6 minLocked: included in All Access13 min
5. 5. Modigliani-Miller with taxes, and the cost of financial distressBecause interest is tax deductible, debt adds the value of its tax shield, lowers WACC and in theory makes 100% debt optimal, until the costs of financial distress, which MM's basic model ignores, are counted.Video · 6 minLocked: included in All Access14 min
6. 6. Optimal and target capital structures, pecking order and agency costsIn practice firms balance the tax benefit of debt against expected distress costs, aim for a target range usually expressed in book values, and adjust for signalling and agency effects that the pecking order and free cash flow hypothesis describe.Video · 6 minLocked: included in All Access15 min