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Finance_12

Determining the Financing Mix/Capital Structure

QuestionAnswer
The relative dispersion of variability in the firm's expected earnings before interest and taxes (EBIT). Business Risk
Financial Risk
The incurring of fixed operating costs in a firm's income stream. Operating Leverage
The use of securities bearing a fixed (limited) rate of return to finance a portion of a firm's assets. Financial Leverage
Break-Even Analysis
Costs that are fixed per unit of output but cary in total as output changes. Variable Costs
Costs that do not vary in total dollar amount as sales or quantity of output changes. Fixed Costs
Contribution Margin
DOL
DFL
DCL
The capital structure that minimizes the firm's composite cost of capital for raising a given amount of funds. Optimal Capital Structure
Modigliani-Miller Hypothesis
The maximum proportion of debt that the firm can include in its capital structure and still maintain its lowest composite cost of capital. Debt Capacity
Agency Costs
Bankruptcy Costs
Created by: Wilkins188