Post-MT Flashcards
1
Q
What happens to the value and price per share of a levered firm in perfect cap mkts? What about EPS and Re
A
Value and price per share stay the same
EPS and Re increase
2
Q
What is MMI?
A
In perfect cap mkts, change in cap structure doesn’t change firm value
3
Q
What is MMII?
A
In perfect cap mkts, change in cap structure increases Re
4
Q
What are the cap mkt assumptions that go into MMI and MMII? (3)
A
No taxes, issue costs or bankruptcy costs
5
Q
There are 3 cases in the relationship between Te and Td (taxes). What are they, and how do they impact V?
A
Te = Td - reverts to MMII eqn - V(L) = V(U) + D(Tc)
Te < Td - V(L) > V(U) + D(Tc) except for extreme cases
Te > Td - V(L) > V(U) + D(Tc)
