Financial Slack is the Unused Debt CapacityBusinesses go through various conditions in their lifetime. There are times when companies earn high income which can be termed as profits or growth of revenues. On the other hand, some companies may go through a downturn in sales, profits, or revenues. In order ... Read More

Financing effects are special kinds of considerations made for the companies or individuals who are weaker in terms of finances and may find it hard to obtain debt from the markets. The intention of financial effects is to help companies and individuals mitigate the financial burdens that may arise from ... Read More

Risk-free Debt is HypotheticalRisk-free debt is a hypothetical condition where the risk associated with the debt is zero. In general, there is no such thing as risk-free debt. While the risk of debt may go up and down in comparison, it can never be zero in any condition. This is ... Read More

The Free Cash Flow of a company depends on the following factors −Sales ProjectionExpense EstimationDepreciationCapital ExpenditureChanges in Net Working CapitalInterest ExpensesTax RatesInflationLet us discuss each of these factors in detail and see how they affect the Free Cash Flows of a company.Sales ProjectionTo determine the Free Cash Flow of a ... Read More

Debt rebalancing is a process of rebalancing the debt while calculating the Weighted Average Cost of Capital (WACC). The concept of WACC is based on the assumption that WACC remains constant throughout the lifetime of a project. It also depends on the fact that debt proportionality remains the same over ... Read More

Terminal Value (TV) is the value of an investment after the end of its initial forecast period. It is often estimated in the discounted cash flow (DCF) method as a way to account for the value of the firm after the end of its initial forecast period.The value of a ... Read More

The cost structure of value is also known as the capital structure of valuing a firm. The theory of the traditional structure of valuing a firm suggests that there is an optimal debttoequity ratio that has a minimum overall cost of capital and maximum market value of a firm. On ... Read More

Target Capital Structure is IdealTarget capital structure is the capital structure that is the most advantageous way for funding a company. There may be a number of optimum capital structures of a company, but the target capital structure is the only one that is considered to be ideal.Capital structure decisions ... Read More

It has often been a matter of managerial decision-making to state the link between strategy and capital budgeting. As capital budgeting is one of the most important decisions organizations make, the effect of strategy on them is a matter of interest for all stakeholders. The strategy may not be the ... Read More

Risk preference is the attitude of taking financial risks by an investor. An individual investor, while making an investment decision, would take risks according to his or her risk preferences. Depending upon the risk preference, the investor will classify the risks associated with an investment and thereby find the investments ... Read More