Session 18: Optimizing Capital Structure (Financing Mix)

I am truly sorry about the technical glitches during class today, but I have learned that what technology gives, it can take away, and I hope that the distractions did not impede the lessons from the class. Since I could not get the slides to work, you will have to listen to the audio, download and connect with the slides, and forgive any numerical misstatements along the way, as I was desperately trying to remember numbers on slides.I looked at the Miller Modigliani theorem through the prism of the debt tradeoff and followed up by using the financing hierarchy that companies seem to move down, when they think about raising fresh financing. I then moved on to looking at how the cost of capital can be used to optimize the right mix of debt and equity. In effect, you estimate the costs of debt and equity at different debt ratios, and try to find the mix of debt and equity that minimizes your cost of capital. If you want to try your hand at using the spreadsheet to optimize debt ratio, try the following:
http://www.stern.nyu.edu/~adamodar/pc...
We will continue with this discussion next week. looking at limits to the approach, and variants.
Slides: https://www.stern.nyu.edu/~adamodar/p...
Post class test: https://www.stern.nyu.edu/~adamodar/p...
Post class test solution: https://www.stern.nyu.edu/~adamodar/p...