Essay on Case Study

1878 Words Nov 30th, 2015 8 Pages
LOOK BEFORE YOU LEVERAGE | | ByYohanes Kristiawan Hartono 16668Yulia Martha 16870Juventius Willieyanto Rudmel 16933Caroline Eva Mursito 16945 | |
International Business Management Program
Atma Jaya University
Yogyakarta

Summary
Bob’s company, Symonds Electronics, had embarked upon an expansion project, which had the potential of increasing sales by about 30% per year over the next 5 years. The additional capital needed is $5,000,000. When the expansion proposal was presented at the board meeting, the directors were unanimous about the decision to accept the proposal. Based on the estimation provided by the marketing department, the project had the potential of increasing revenues by between 10% (Worst Case) and 50% (Best
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They need to be careful about the value of the debt; the debt can grow beyond the ability to pay due to either external events (income loss) or internal difficulties (poor management of resources). For addition, debt has little or no impact on control of the company.

2. Homemade leverage can be explained as: * A substitution of risks that investors may undergo in order to move from overpriced shares in highly levered firms to those in unlevered firms by borrowing in personal accounts; * the situation where individuals borrowing on the exact same terms as large firms can duplicate corporate leverage through purchasing and financing options; * Idea that as long as individuals borrow (or lend) on the same terms as the firm, they can duplicate the affects of corporate leverage on their own. Thus, if levered firms are priced too high, rational investors will simply borrow on personal accounts to buy shares in unlevered firms * Idea that as long as individuals borrow (or lend) on the same terms as the firm, they can duplicate the effects of corporate leverage on their own. Thus, if levered firms are priced too high, rational investors will simply borrow on personal accounts to buy shares in unlevered firms. * Approach stating that when individuals borrow on the same terms as a firm, they can get the same affects of corporate leverage on their own.
The shareholder might be able to use homemade leverage to create the same payoffs by the M&M

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