Session 21( Undergraduate): APV, Relative Analysis and Debt Mix

In this class, we continued our discussion of the cost of capital approach to optimizing debt ratios by looking at the determinants of the optimal. In particular, it was differences in tax rates, cash flows (as a percent of value) and risk that determined why some companies have high optimal debt ratios and why some have low or no debt capacity. We then looked at the Adjusted Present Value (APV) approach to analyzing the effect of debt. In particular, this approach looks at the primary benefit of debt (taxe br, br,