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With perfect capital markets, the risk of bankruptcy is not a disadvantage of debt—bankruptcy<br>simply shifts the ownership of the firm from equity holders to debt holders without changing the<br>total value available to all investors.
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PROCESS THAT IMPOSES BOTH DIRECT AND INDIRECT COSTS ON THE FIRM / TUTORIALOUTLET DOT COM
PROCESS THAT IMPOSES BOTH DIRECT AND INDIRECT COSTS ON THE FIRM / TUTORIALOUTLET DOT COM Process that imposes both direct and indirect costs on the firm FOR MORE CLASSES VISIT www.tutorialoutlet.com With perfect capital markets, the risk of bankruptcy is not a disadvantage of debt—bankruptcy simply shifts the ownership of the firm from equity holders to debt holders without changing the total value available to all investors. Is this description of bankruptcy realistic? No. Bankruptcy is rarely simple and straightforward—equity holders do not just “hand the keys” to debt holders the moment the firm defaults on a debt payment. Rather, bankruptcy is a long and complicatedprocess that imposes both direct and indirect costs on the firm and its investors, costs that the assumption of perfect capital markets ignores. The relative proportions of debt, equity, and other securities that a firm has outstanding constitute its capital structure. When corporations raise funds from outside investors, they must choose which type of security to issue. The most common choices are financing through equity alone and financing through a combination of debt and equity. We begin our discussion by consideringboth of these options.
PROCESS THAT IMPOSES BOTH DIRECT AND INDIRECT COSTS ON THE FIRM / TUTORIALOUTLET DOT COM Thank You
