Fani Warraich MANAGEMENT SCIENCES   -   Corporate Finance

What is the main advantage of using debt financing over equity financing?

Debt financing provides financial leverage, which means that a company can generate higher returns on equity by using debt to finance its operations. This is because debt is a cheaper source of financing compared to equity, and interest on debt is tax deductible.
A company has a beta of 1.2 and the market return is 10%. What is the company's cost of equity using the Capital Asset Pricing Model (CAPM)? A company is evaluating a project with a positive NPV (Net Present Value) but significant upfront investment. The project also has the flexibility to be abandoned after year 2 if market conditions worsen. How can this flexibility be best incorporated into the capital budgeting decision? A company has a debt-to-equity ratio of 2:1 and a cost of debt of 6%. If the tax rate is 30% and the cost of equity is 12%, what is the company's weighted average cost of capital (WACC)? What is the main advantage of using debt financing over equity financing? A project has an initial investment of Rs. 100,000 and is expected to generate cash flows of Rs. 30,000 per year for 5 years. What is the project's payback period? Short-term loan can be described as having maximum period Company A has a debt-to-equity ratio of 0.5, while Company B has a ratio of 2.0. Which company is likely to have a higher weighted average cost of capital (WACC)? Which of the following capital budgeting techniques takes into account the time value of money? Company X is considering acquiring Company Y. Synergies from the M&A are expected to arise from combining their sales forces. However, significant integration costs are also anticipated. How should these factors be best considered when evaluating the M&A? A company with strong future growth prospects unexpectedly announces a significant increase in its dividend payout. According to signaling theory, what might this decision signal to investors?