Project Help Manual This lists some of the questions that may come up in the context of the project. You may also find answers to your questions in my emails relating to the project, which are listed here.

VI. Optimal Capital Structure

To assess the optimal financing mix of your firm, try the following questions:

1. Cost of Capital Approach What is the current cost of capital for the firm? What happens to the cost of capital as the debt ratio is changed? At what debt ratio is the cost of capital minimized and firm value maximized? (If they are different, explain) What will happen to the firm value if the firm moves to its optimal? What will happen to the stock price if the firm moves to the optimal, and stockholders are rational? 1. Cost of Capital Approach chi ph s dng vn mc tiu C12: What is the current cost of capital for the firm? chi ph s dng vn l j? C14: What happens to the cost of capital as the debt ratio is changed? o Chuyn g s xy ra vi chi ph s dng vn khi t l n thay i? C14: At what debt ratio is the cost of capital minimized and firm value maximized? (If they are different, explain) o Ti t l n no th chi ph s dng vn l ti thiu v gi tr cng ty l ti a? C16: What will happen to the firm value if the firm moves to its optimal? o Chuyn g s xy ra vi gi tr cng ty khi n t cu trc vn ti u? Gi tr dn ko chu tc ng ca cu trc vn C16: What will happen to the stock price if the firm moves to the optimal, and stockholders are rational? o Chuyn g s xy ra vi gi c phiu khi cng ty t cu trc vn ti u v nhng nh u t c l tr?2. Building Constraints into the Process What rating does the company have at the optimal debt ratio? If you were to impose a rating constraint, what would it be? Why? What is the optimal debt ratio with this rating constraint? How volatile is the operating income? What is the normalized operating income of this firm and what is the optimal debt ratio of the firm at this level of income?

To analyze whether the firm has too much or too little debt relative to the sector and the market, try the following :

1. Relative Analysis Relative to the sector to which this firm belongs, does it have too much or too little in debt? (Do a regression, if necessary) Relative to the rest of the firms in the market, does it have too much or too little in debt? (Use the market regression, if necessary) VII. Mechanics of Moving to the Optimal

To understand whether your firm should move to its optimal gradually or quickly, and whether it should take projects or alter its existing mix, try answering the following questions:

1. The Immediacy Question If the firm is under levered, does it have the characteristics of a firm that is a likely takeover target? (Target firms in hostile takeovers tend to be smaller, have poorer project and stock price performance than their peer groups and have lower insider holdings) If the firm is over levered, is it in danger of bankruptcy? (Look at the bond rating, if the company is rated. A junk bond rating suggests high bankruptcy risk.) 2. Alter Financing Mix or Take Projects What kind of projects does this firm expect to have? Can it expect to make excess returns on these projects? (Past project returns is a reasonable place to start - see the section under investment returns) What type of stockholders does this firm have? If cash had to be returned to them, would they prefer dividends or stock buybacks? (Again, look at the past. If the company has paid high dividends historically, it will end up with investors who like dividends)

To analyze what kind of financing the firm should use to move to its optimal, try the following:

1. Financing Type How sensitive has this firm's value been to changes in macro economic variables such as interest rates, currency movements, inflation and the economy? How sensitive has this firm's operating income been to changes in the same variables? How sensitive is the sector's value and operating income to the same variables? What do the answers to the last 3 questions tell you about the kind of financing that this firm should use? VIII. Dividend Policy

To analyze how much the firm has returned to stockholders in the past, and to assess, from a qualitative trade off, whether it should return more or less, try the following:

1. Historical Dividend Policy How much has this company paid in dividends over the last few years? How much stock has this company bought back over the last few years? 2. Firm Characteristics How easily can the firm convey information to financial markets? In other words, how necessary is it for them to use dividend policy as a signal? Who is the average stockholder in this firm? Does he or she like dividends or would they prefer stock buybacks? How well can this firm forecast its future financing needs? How valuable is preserving flexibility to this firm? Are there any significant bond covenants that you know of on the firm's dividend policy? How does this firm compare with other firms in the sector in terms of dividend policy? IX. A Framework for Analyzing Dividends

To assess how much the firm could have returned to stockholders and whether it should be returning more or less, try the following:

1. Affordable Dividends What were the free cash flows to equity that this firm had over the last few years? How much cash did the firm actually return to its owners over the last few years? What is the current cash balance for this firm? 2. Management Trust How well have the managers of the firm picked investments, historically? (Look at the investment return section) Is there any reason to believe that future investments of this firm will be different from the historical record? 3. Changing Dividend Policy Given the relationship between dividends and free cash flows to equity, and the trust you have in the management of this firm, would you change this firm's dividend policy? VI. Cu trc ti u Capital________________________________________ nh gi hn hp ti u ti chnh ca cng ty ca bn, hy th nhng cu hi sau y:________________________________________1. Chi ph ca phng php tip cn vno chi ph hin ti ca vn cho cc cng ty l g?o iu g xy ra vi chi ph vn nh t l n c thay i?o Mc t l n c chi ph vn gim thiu v ti a ha gi tr cng ty? (Nu chng khc nhau, gii thch)o iu g s xy ra vi cc gi tr cng ty nu cng ty di chuyn ti u ca n?o iu g s xy ra vi gi c phiu nu doanh nghip chuyn n ti u, v cc c ng l hp l?2. Xy dng hn ch vo Processo khng cng ty c gi g t l n ti u? Nu bn p t mt hn ch nh gi, s l g? Ti sao? T l n ti u vi ch gi ny l g?o Lm th no d bay hi l thu nhp hot ng? Hot ng thu nhp normalized ca cng ty ny l g v t l n ti u ca cng ty mc thu nhp ny l g?________________________________________ phn tch cho d cng ty c qu nhiu hoc qu t khon n lin quan n cc lnh vc v th trng, hy th nhng iu sau y:________________________________________1. Phn tch tng io Lin quan n lnh vc m cng ty ny thuc v, n c qu nhiu hay qu t trong n nn? (Lm mt hi quy, nu cn thit)o So vi phn cn li ca cng ty trn th trng, n c qu nhiu hay qu t trong n nn? (S dng hi quy ca th trng, nu cn thit)VII. C kh ca Tin ti ti u________________________________________ hiu xem cng ty ca bn nn di chuyn ti u ca n dn dn hoc nhanh chng, v liu c nn a cc d n hoc thay i kt hp hin ti ca mnh, c gng tr li cc cu hi sau y:________________________________________1. S tc Cu hio Nu cng ty ang trong s dng vn vay, n c nhng c im ca mt cng ty l mt mc tiu tip qun c kh nng? (Cc doanh nghip mc tiu trong vic thn tnh th ch c xu hng nh hn, c hiu qu d n v gi c phiu km hn so vi cc nhm bn cng trang la v c c phn trong ni b thp hn)o Nu cng ty qua s dng vn vay, l n c nguy c ph sn? (Nhn vo nhng nh gi tri phiu, nu cng ty c nh gi. Mt nh gi tri phiu rc cho thy nguy c ph sn cao.)2. Ti Alter Mix hoc Chp d no Nhng loi d n no cng ty ny mong mun c? N c th mong i lm li thng d trn cc d n ny? (Li nhun d n trc y l mt ni hp l bt u - xem phn di nhun u t)o khng cng ty ny c g loi ca c ng? Nu tin c tr li cho h, h s thch c tc hoc mua li c phiu? (Mt ln na, nhn vo qu kh. Nu cng ty tr c tc cao trong lch s, n s kt thc vi nhng nh u t thch c tc)________________________________________ phn tch nhng loi ti tr ca cng ty nn s dng di chuyn ti u ca n, hy th nhng iu sau y:________________________________________1. Loi ti chnho Lm th no nhy cm ny gi tr ca cng ty ny l nhng thay i trong cc bin kinh t v m nh li sut, bin ng tin t, lm pht v nn kinh t?o Lm th no nhy cm thu nhp hot ng ca cng ty ny l nhng thay i trong cc bin ging nhau khng?o Lm th no nhy cm l gi tr ca ngnh v thu nhp hot ng cho cc bin ging nhau khng?o g cc cu tr li cho 3 cu hi cui cng cho bn bit v cc loi ti chnh m cng ty ny nn s dng?VIII. Chnh sch c tc________________________________________ phn tch c bao nhiu cng ty tr li cho c ng trong qu kh, v nh gi, t mt thng mi tnh ht, cho d n s tr nhiu hn hoc t hn, hy th nh sau:________________________________________1. Lch s Chnh sch c tco Cng ty ny tr bao nhiu c tc trong nhng nm qua khng?o Cng ty ny mua bao nhiu c phiu tr li trong vi nm qua khng?2. c im Firmo Lm th no c th d dng cc cng ty truyn ti thng tin n th trng ti chnh? Ni cch khc, lm th no l n cn thit h s dng chnh sch c tc nh mt tn hiu?o cc c ng trung bnh trong cng ty ny l ai? Anh ta hoc c ta thch c tc hoc h mun mua li c phiu?o c th cng ty ny d bo nhu cu ti chnh tng lai ca mnh tt nh th no? Lm th no c gi tr bo tn c tnh linh hot cho cng ty ny?o C bt k giao c tri phiu quan trng m bn bit v chnh sch c tc ca cng ty?o Lm th no cng ty ny so snh vi cc cng ty khc trong ngnh v chnh sch c tc?IX. Mt khun kh cho Phn tch C tc________________________________________ nh gi c bao nhiu cng ty c th tr li cho c ng v cho d nn c tr nhiu hn hoc t hn, hy th nh sau:________________________________________1. C tc phi chngo l dng tin t do vn ch s hu m cng ty ny c trong vi nm qua l g?o Lm th no nhiu tin mt ca cng ty thc s tr li cho ch s hu ca n trong vi nm qua khng?o s d tin mt hin ti ca hng ny l g?2. Qun l tin cyo c cc nh qun l ca cng ty chn u t, v mt lch s cng nh th no? (Nhn vo phn u t tr li)o C l do tin rng cc khon u t trong tng lai ca cng ty ny s khc nhau t cc ghi chp lch s?3. Thay i chnh sch c tco Vi cc mi quan h gia c tc v cc dng tin t do vn ch s hu, v s tin tng bn c trong qun l ca cng ty ny, bn s thay i chnh sch c tc ca cng ty ny?