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Introduction To Finance Formula Sheet

Sandra Watson
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University of Alberta

Introduction to Finance (Fin301)

Chapter 10 – Capital Structure Theory: “How to buy things”
Capital Structure: Mix of debt and equity the firm chooses to finance its operations
Unlevered Firm EPS: Gains and losses are consistent across good years and bad years
Levered Firms EPS: Leverage magnifies shareholder’s gains and losses, makes equity more risky
M & M Proposition I: Firm value remains the same regardless of the chosen mix of debt and equity. Investors can
undo the firm’s capital structure using homemade leverage.
 When no taxes and perfect capital markets, the value of the firm is independent of financial leverage



Introduction To Finance (FIN 301) Formula Sheet

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