Chapter 13 leverage and capital structure solutions

LEVERAGE, CAPITAL STRUCTURE, AND DIVIDEND POLICY

Module 4 - Background

LEVERAGE, CAPITAL STRUCTURE, AND DIVIDEND POLICY

Required Reading

Capital Structure

Start by viewing the following video. It will introduce you to capital structure and provide you with a basic understanding of the main topics from this module:

Obi, P. (2014). Capital structure and financial leverage. Purdue University. Retrieved from: https://www.youtube.com/watch?v=xKBdJX-rHMg

Now go through the following tutorials from Investopedia which include some videos. Start out with the tutorial on degree of operating leverage, then scroll down to the sections on earnings before interest and taxes and degree of financial leverage:

Investopedia

Degree of operating leverage. (n.d.). Investopedia. Retrieved from: http://www.investopedia.com/terms/d/degreeofoperatingleverage.asp

Now dive deeper into the concepts of capital structure with the following two book chapters. Pay special attention to the concepts of operating leverage, financial leverage, business vs. financial risks, and the major theories of capital structure choices. While the tutorials above will give you a broad overview of the main topics, the following readings have worked out problems and solutions that will be essential for completing the Case Assignment:

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Brigham, E. & Houston, J. (n.d.). Chapter 13: Capital structure and leverage . Fundamentals of Financial Management. Cengage Learning.

Finally, take a look at the following book chapter on dividend policy. Take a close look at the concepts of regular dividend policy and low-regular-and-extra dividend policy, as well as stock splits and stock repurchases:

Clive, M. (2012). Chapter 15: Dividend policy. Financial management for non-financial managers. Kogan Page. Available in the Trident Online Library.

Optional Reading

Ahmad, A. (n.d.) Firm debt part 1: Calculating how much to borrow. Coursera. Retrieved from: https://www.coursera.org/learn/finance-debt/lecture/0P8l0/firm-debt-part-1-calculating-how-much-to-borrow

Sexton, N. (2010). Introduction to dividend policy. LSBF Global MBA. Retrieved from: https://www.youtube.com/watch?v=wPVdxCJ2iCI