How does a firm’s capital structure relate to your personal capital structure?

Capital budgeting is a vital part of a firm’s decision-making. Each approach will provide a piece of information to help analyze potential projects to make informed decisions.

• From a financial manager’s perspective, discuss the capital-budgeting process used to identify projects that add to the firm’s value.
• How do capital-budgeting decisions help to define a firm’s strategic direction?

Question 5: Capital Structure Decisions

Examining the effects of a company’s financial leverage on stock prices, earnings per share, and the cost of capital is important to a firm’s capital structure.

• What issues managers should consider when making capital structure decisions?
• Why would companies have different capital structures? Explain.

Question 6: The Firm’s and Your Personal Capital Structure

Take control of your money! This concept is extremely important because it can influence a company’s return and your capital structure.

• How does a firm’s capital structure relate to your personal capital structure?
• In what ways are they similar?
• Provide examples of how you use debt and equity in your personal financial life that parallels the basic capital structure decisions made by a firm.

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