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17.1 The Concept of Capital Structure

Lecture video introduction

Lecture video part 1

Learning Outcomes

The Basic Balance Sheet

Attracting Capital

Weights in the Capital Structure

17.2 The Costs of Debt and Equity Capital

Lecture video part 2

Cost of Debt Capital

Yield to Maturity and the Cost of Debt

After-Tax Cost of Debt

Cost of Equity Capital

CAPM

Constant Dividend Growth Model

17.3 Calculating the Weighted Average Cost of Capital

Lecture video part 3

WACC Equation

Calculating WACC in Practice

Issues in Estimating the Cost of Equity Capital

Concepts in Practice: Estimating the Equity Cost of Capital

Net Debt

17.4 Capital Structure Choices

Lecture video part 4

The Unlevered Firm

The Levered Firm

Leverage and the WACC

The Impact of Taxes

17.5 Optimal Capital Structure

Lecture video part 5

Debt and Financial Distress

Trade-Off Theory

17.6 Alternative Sources of Funds

Lecture video part 6

Preferred Shares

Issuing New Common Stock

Convertible Debt

Welcome to 'How Firms Raise Capital and Manage Capital Structure,' a comprehensive online course designed to demystify the financial mechanisms that drive corporate growth. Whether you are an aspiring financial analyst, a business owner, or a finance student, understanding how companies fund their operations is crucial.

Welcome to 'How Firms Raise Capital and Manage Capital Structure,' a comprehensive online course designed to demystify the financial mechanisms that drive corporate growth. Whether you are an aspiring financial analyst, a business owner, or a finance student, understanding how companies fund their operations is crucial. This course dives deep into the core concepts of capital structure, exploring the delicate balance between debt and equity. You will learn how to read the basic balance sheet from a financing perspective and understand the weights in a firm's capital structure. We will guide you through the intricacies of calculating the costs of debt and equity capital, utilizing essential models like the Capital Asset Pricing Model (CAPM) and the Constant Dividend Growth Model. Furthermore, you will master the Weighted Average Cost of Capital (WACC) and see how it is applied in real-world scenarios. The course also covers critical capital structure choices, comparing unlevered and levered firms, and analyzing the impact of taxes and financial distress. Finally, we will explore optimal capital structure through the Trade-Off Theory and examine alternative funding sources such as preferred shares, new common stock, and convertible debt. By the end of this program, you will possess the analytical tools needed to make informed financial decisions and optimize a firm's capital structure for maximum value creation.

Chapter 17 How Firms Raise Capital and Manage Capital Structure

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            <p>Understanding how a firm finances its overall operations and growth is a cornerstone of corporate finance. This course explores the fundamental concept of capital structure, which represents the specific mix of debt and equity used by a company to fund its assets and operations. By examining the basic balance sheet, we will analyze how firms attract capital from various investors and determine the appropriate weights for each funding source. This foundational knowledge is essential for grasping how financial managers balance the immediate needs of the business with the long-term expectations of those providing the necessary funds.</p>

<p>Beyond the basic definitions, the curriculum delves into the quantitative and strategic aspects of managing capital. We will analyze the individual costs of debt and equity, utilizing sophisticated models such as the Capital Asset Pricing Model (CAPM) and the Constant Dividend Growth Model to arrive at the Weighted Average Cost of Capital (WACC). Furthermore, the course addresses the critical choices between levered and unlevered structures, the significant impact of corporate taxes, and the trade-off theory regarding financial distress. By examining alternative instruments like preferred shares and convertible debt, you will gain a comprehensive toolkit for determining an optimal capital structure that maximizes firm value while minimizing risk.</p>
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