The Capital Structure Decision and Other Issues, James Tompkins

This is the fifth lecture in the "Advanced Corporate Finance" series in which I conclude the final lecture related to the capital structure decision. What are the most important considerations when a firm is choosing whether or not to have debt and if so how much? For example, does it matter if the firm is in a high or low risk business, or are there other characteristics of the firm's business that are relevant to the capital structure decision? What about the risk of bankruptcy or financial distress? Can capital structure changes signal any information about the firm? When should a firm consider short-term debt as opposed to long-term debt? What about private debt such as borrowing from a bank as opposed to issuing debt in the capital markets? These are all issues I address in this lecture, and I conclude with a comment by a Fortune 100 company Treasurer as she and the Chief Financial Officer consider their capital structure decisions for the firm.

[@danzz7583]

taking a corporate finance class this semester. This adds a lot of new insight to that class. Thanks :)

[@skhan20308]

Extremely powerful and informative presentation. Thanks a lot for your time and effort.

[@understandingfinance]

So welcome.

[@arkeshsharma]

Thank you sir for making this detailed video. It was really good.
Your face reminded me of a SAP Finance gentleman I met in Sweden during my short-term project assignment back in 2012. :)

[@understandingfinance]

+Arkesh Sharma You are welcome. Small world. :)

[@muzicoflife]

Thank you so much, very detailed and exhaustive lecture

[@understandingfinance]

You are welcome. Glad it was helpful.

[@zvone4016]

Thanks a lot, you put so much effort to explain and helped me a lot !!👏

[@understandingfinance]

You are so welcome.

[@GMS919]

Great!

[@mrun.g]

This lecture was really helpful. Thank you so much :)

[@understandingfinance]

Mrunmayee Godbole Great! You are welcome.

[@spoorthipurumala207]

Very helpful :) Thank you!

[@understandingfinance]

Spoorthi Purumala You are welcome. Glad it was helpful.

[@tearneylopez3810]

I so wish you would have been my financial economics professor! Mine was a complete dolt!

[@understandingfinance]

Tearney Lopez Thanks Tearney. I appreciate the compliment and am sorry you had a bad teacher.

[@Vezarici]

Hello Mister thx again for those videos.
I have a question. Why a company like IBM with a safe rating wouldn't issue debt ???? althought they could afford it

[@understandingfinance]

Hamza Zaki Hi Hamza. This is not a good forum for me to answer questions since it robs people who have not yet watched the videos of their own thought process. So suffice it for me to challenge you to examine all the issues relevant to capital structure and to ask yourself how IBM would fit. For example, would you say IBM is in a space that is increasingly competitive and therefore increasingly risky? Also, ask yourself if the issues necessarily apply to all companies, or would you expect the issues to apply to companies on average?

[@ericzhou1788]

Hi James:Can I ask a simple question? When we finance a new project, we finance this new project half by debt with less cost of capital and half by selling original project. eg now needs to finance a 200m new project. In order to get this 200m dollars, we borrow 100m of cost of capital @8% and sell a old project which can generate 10% of profit. All these two transactions are enough to finance 200m for new project. What "s impacts on WACC? Does WACC is 9% in this case??

[@understandingfinance]

Hi Eric...I am sorry ..but I do not like to answer questions on you tube...one reason is that it robs others of the thought process...I know this is not helpful, but the answer is in the Capital Structure lectures...Sorry...

[@ericzhou1788]

Understanding Finance Thanks, James anyway. Your lecture is extremely helpful!