The fresh managing director of, Pizza M&M is, Moe Miller considering altering the company’s capital structure to reduce the cost of capital. With the cost of the cost of equity at 8% and also debt at 4%, adding a more affordable price of funds through debt appears to be obvious. The case provides an easy framework for understanding the strong intuition behind the foundational capital structure irrelevance proposals of Modigliani and Miller (1958).
Pupils have to create straightforward estimates of the cost of capital and estimate the worth of debt and equity claims under various recapitalization scenarios. As the company really is easy and runs in a quasi-perfect marketplace, the computations require only that students are comfortable with the approximation of firm cost of capital.
PUBLICATION DATE: March 11, 2013 PRODUCT #: UV6629-PDF-ENG
This is just an excerpt. This case is about FINANCE & ACCOUNTING
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