Tuesday, February 25, 2020

The Trade-Off Theory of Capital Structure Coursework

The Trade-Off Theory of Capital Structure - Coursework Example According to Pacific Daily News (2014), the recent GPA successfully sold $76.47 million of revenue bonds The concept of dividend signaling asserts that the announcement of dividend payments by a company contributes positively to the future prospects of the company. The announcement of a rise in dividend payout helps to solidify the prospects in the market and improves the image of the company in lieu of growth prospects and stability in the future. How much will a firm receive in net funding from a firm commitment underwriting of 250, 000 shares priced to the public at $40 if a 10% underwriting spread has been added to the price paid by the underwriter? Additionally, the firm pays $600, 000 in legal fees According to Baker (2005), underwriter spread fall in the category of direct expenses whilst management fees such as legal feels falls with the indirect issuance expenses. Hence, $1.9 million becomes the direct expenses and $1.65 million become the indirect expense for the issuer. In economics, the value of the firm is linked to profit maximization; as a result, the value of the firm is the present value of the firm’s current and future profits. In finance to determine the present value of a firm, the present income is multiplied by five. Hence, the present value of ABC is operating incomeX5.

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