Option to repurchase shares

A type of convertible bond

Option to buy 15% more shares

Lockup clause for insiders

 Increased dividends attracting more investors.

 Reduction in business risk due to higher leverage.

 Tax shields becoming irrelevant.

Replacement of high-cost equity with low-cost debt.

Dividend payments.

Retained earnings.

Shareholder equity.

Interest payments on debt.

The firm is 100% equity-financed.

Earnings are fully retained.

Debt and equity are equally weighted.

WACC is minimized, and the firm is almost debt-financed.

 Debt issuance indicates confidence in cash flow stability.

Firms prioritize equity issuance over internal financing.

 Asymmetric information favors equity financing.

Managers use equity to signal strong future prospects.

Sells securities to the public

Manages company finances

Produces annual reports

Determines tax obligations

Registration for trading options

Listing of expired IPOs

Stock buyback program

Registering a large issue to sell later

Cost of equity (Ke) is at its lowest point.

WACC is minimized, and firm value is maximized.

Debt financing is avoided entirely.

The firm is 100% equity-financed.

 None—all plans have equal WACC.

 Plan C (60% debt, WACC = 11.4%).

 Plan B (40% debt, WACC = 10.3%).

Plan A (20% debt, WACC = 10.9%).

WACC declines with higher debt.

Equity is always preferable to debt.

Capital structure is irrelevant to firm value.

Debt always increases firm value.