Strategies for Optimizing Capital Structure and Maximizing Shareholder Value

Leonard N. Stern School of Business

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  • 1 day
  • online

What are the topics?

Leonard N. Stern School of Business

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Who should attend

Although there are no formal education or background requirements, this course is designed for executives who meet the criteria below. While we strongly encourage global participation, please note that all courses are taught in English. Proficiency in written and spoken English is required.

  • Years of Experience – Designed for professionals with 5+ years of work experience
  • Job Functions – Ideal for professionals who need to make investment or financing decisions, or who frequently communicate with financial decision makers
  • Prerequisites – Intended for individuals who want to improve their financial literacy but have an existing experience with or knowledge of corporate finance

About the course

Does financial leverage actually matter? What are the benefits, costs and risks associated with it? Is there an optimal amount of leverage? And if firms are highly levered, how should stock market investors adjust for risk?

This program is designed to answer these and related questions. In this course, participants will learn about the Nobel prize-winning Modigliani-Miller (MM) Theorem of capital structure, and examine the effects of leverage on firm value and equity risk. They will understand how leverage creates valuable interest tax shields while increasing the risk of financial distress. Through a combination of discussion, case studies and numerical examples, participants will gain hands-on practice with rigorous methods (WACC and APV) to account for leverage in equity or firm valuation or when making investment decisions.

Program Takeaways

  • Leverage – Learn the benefits, costs and risks associated with leverage and appreciate popular fallacies, such as “debt is cheap and equity is expensive”
  • Capital Structure – Analyze how firms determine their optimal capital structure and use debt tax shields increase the value of their business
  • Methods – Utilize rigorous methods to account for leverage in equity or firm valuation, as well as investment decisions

Agenda

Day 1

Session 1: Capital Structure

  • Review: Capital Asset Pricing Model
  • Modigliani-Miller I: Leverage and Firm Value
  • Modigliani-Miller II: Leverage and Equity Risk
  • Cost of Capital Fallacy
  • Leverage, Information, and Incentives
  • Interest Tax Shields
  • The “Low Leverage Puzzle”
  • Costs of Financial Distress
  • Optimal Capital Structure

Day 2

Session 2: Case Study: UST, Inc.

  • Costs and Benefits of Leverage
  • UST’s Leveraged Recapitalization
  • Computing UST’s Optimal Capital Structure

Day 3

Session 3: Leverage, Valuation and Investment Decisions

  • Weighted Average Cost of Capital (WACC) Method
  • Adjusted Present Value (APV) Method
  • Examples: ABC Inc., Candy Company, Singer Corp.

Experts

Holger M. Mueller

Holger M. Mueller is the Nomura Professor of Finance at New York University Leonard N. Stern School of Business. He is also a research associate at NBER, a research fellow at CEPR, and a research associate at ECGi. Professor Mueller has been with NYU Stern since 2001. He teaches Corporate Financ...

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Strategies for Optimizing Capital Structure and Maximizing Shareholder Value at Leonard N. Stern School of Business

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