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338 test 3
Terms in this set (8)
market timing theory
-They issue equity when the market is "high" and after big stock price run ups.
-They issue debt when the stock market is "low" and when interest rates are "low."
-The issue short-term debt when the term structure is upward sloping and long-term debt when it is relatively flat.
bU is the beta of a firm when it has no debt (the unlevered beta)
The announcement of an intended repurchase might send a signal that affects stock price, and the previous change in capital structure affects stock price, but the repurchase itself has no impact on stock price.
repurhase no effect on stock price
If Ts declines, while Tc and Td remain constant, the slope coefficient (which shows the benefit of debt) is decreased.
A company with a low payout ratio gets lower benefits under the Miller model than a company with a high payout, because a low payout decreases Ts.
Corporate tax laws favor debt over equity financing because interest expense is tax deductible while dividends are not.
personal tax laws favor equity over debt because stocks provide both tax deferral and a lower capital gains tax rate.
The smaller is rTS, the larger the value of the tax shield
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