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Essay

Diageo Plc

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Issue:

Business

 

Written by:

Patricia S

 

Date added:

December 29, 2015

 

Level:

College

 

Grade:

A

 

No of pages / words:

1 / 231

 

Was viewed:

8457 times

 

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Essay content:

The company chooses how much debt and equity finance to use by balancing the cost and benefits of these two types of financial way. If we apply this model to Diageo, in a historic structure based in lowers debt’s ratios we can see the optimal debt ratio can be higher that historical debt ratio. The Diageo should borrow up to the point where: Marginal benefits of the tax shield =Marginal cost of financial distress When this happen the debt increases the firm value by reducing the corporate tax bill as we can see in the next chart: In Diageo case, the major issue is the measure of bankruptcy costs and the uncertainty of operating income...
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If we apply this model to Diageo, in a historic structure based in lowers debt’s ratios we can see the optimal debt ratio can be higher that historical debt ratio. The Diageo should borrow up to the point where: Marginal benefits of the tax shield =Marginal cost of financial distress When this happen the debt increases the firm value by reducing the corporate tax bill as we can see in the next chart: In Diageo case, the major issue is the measure of bankruptcy costs and the uncertainty of operating income...
displayed 300 characters

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