Chapter 6: Capital Structure

In this section

• Weighted-Average Cost of Capital (WACC)
  Weighted-Average Cost of Capital (WACC) (CFA Level 1): Formula and Interpretation, Why the Tax Shield?, and Components of WACC. Key definitions, formulas, and exam tips.
• Capital Structure Theories (Modigliani–Miller, Trade-Off Theory)
  Capital Structure Theories (Modigliani–Miller, Trade-Off Theory) (CFA Level 1): Modigliani–Miller Proposition I (No Taxes), Key Implications, and Quick Personal Anecdote. Key definitions, formulas, and exam tips.
• Target Capital Structure and Factors Affecting It
  Target Capital Structure and Factors Affecting It (CFA Level 1): Definition of Target Capital Structure, Factors Influencing Target Capital Structure, and Business Risk. Key definitions, formulas, and exam tips.
• Leverage and Financial Risk
  Leverage and Financial Risk (CFA Level 1): Leverage Defined, Operating Leverage vs. Financial Leverage, and Measuring Financial Leverage. Key definitions, formulas, and exam tips.
• Cost of Equity, Cost of Debt, and Preferred Stock
  Cost of Equity, Cost of Debt, and Preferred Stock (CFA Level 1): Cost of Equity, Capital Asset Pricing Model (CAPM), and Dividend Discount Model (DDM). Key definitions, formulas, and exam tips.
• Debt Covenants and Covenant Analysis
  Debt Covenants and Covenant Analysis (CFA Level 1): Definition of Covenants, Types of Covenants, and Positive (Affirmative) Covenants. Key definitions, formulas, and exam tips.
• Convertible Bonds, Warrants, and Other Hybrid Instruments
  Convertible Bonds, Warrants, and Other Hybrid Instruments (CFA Level 1): Convertible Bonds, Defining Convertible Bonds, and Interest Rates and the Bond Floor. Key definitions, formulas, and exam tips.
• Pecking Order Theory and Security Issuance Decisions
  Pecking Order Theory and Security Issuance Decisions (CFA Level 1): Key Principles of Pecking Order Theory, Background and Hierarchy, and Information Asymmetry and Signaling. Key definitions, formulas, and exam tips.
• Recapitalization Strategies (Equity for Debt Swaps)
  Recapitalization Strategies (Equity for Debt Swaps) (CFA Level 1): What Is Recapitalization?, Equity-for-Debt Swaps: The Basics, and Typical Steps in an Equity-for-Debt Swap. Key definitions, formulas, and exam tips.
• Legal/Tax Implications for Capital Structure in Different Jurisdictions
  Legal/Tax Implications for Capital Structure in Different Jurisdictions (CFA Level 1): Tax Regimes and Interest Deductibility, Debt Tax Shield, and Thin Capitalization Rules. Key definitions, formulas, and exam tips.