FINM7007 Applied Corporate Finance

Use your knowledge on capital structure theory to discuss the question.
1. For each team member, select a publicly listed company. For each team, the selected companies should come from either of the following • Two countries and in the same industry.
• Two industries and in same country
Try to have more than one company from a selected country/industry and try to pick as diverse a mix of companies as possible (e.g. companies which have a variety in size, ownership structure, life cycle, and etc.). Avoid financial service firms, such as banks and insurance companies, as well as companies with large investment arms. Also, avoid money losing companies and real estate investment trusts.
2. For the selected companies, compute firm-level leverage ratios for at least four successive years. Compute industry/country average leverage ratio for the corresponding time period as well.
3. Based on the capital structure theories discussed in class and other relevant arguments, discuss in qualitative or quantitative terms, the advantages and disadvantages from using debt for each company.
4. Utilize the company’s accounting information and make suitable assumptions, (e.g. cost of capital and other relevant parameters), to determine whether the firms have too little or too much debt comparing to your recommended “optimal” leverage ratio.
5. Based on the institutional background of the selected countries (e.g. financial market condition, and legal system) and/or industry-level features of the selected industries to discuss potential implications on selected firms’ capture structure differences.

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