Last Modified: 2011-05-26
- business managers
- employees & unions
- investors & creditors
- tax authorities
- government regulatory agencies
- uses variance to measure risk
- variance can be diversified away, which would not be rewarded
- measures non-diversified risk with beta, translated into expected return
- the higher the marginal tax rate of a business, the more debt it will have
- the greater the indirect bankruptcy cost, the less debt the firm can afford to use
- the greater the agency problems associated with lending, the less debt the firm can afford to use
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