Given company: tyro payments LtdOPTIMAL LEVERAGE ANALYSISYour group should discuss the implications...

Question

Given company: tyro payments LtdOPTIMAL LEVERAGE ANALYSISYour group should discuss the implications of the various capital structure theories for optimal capital structure as they apply to your assigned company, ( Tyro payments Ltd ) including:• Trade-off theory• The Modigliani and Miller PropositionsCASH FLOW AND CAPITAL BUDGETINGYour team was hired to analyse and estimate two alternative investment proposals. The first proposal calls for a major renovation of the company’s manufacturing facility. The second involves replacing just a few obsolete pieces of equipment in the facility. The company will choose one project or the other this year, but it will not do both. The cash flows associated with each project appear below and the firm discounts project cash flows at 15%.Year Renovate Replace  0.   -$9,000,000. -$2,400,000   3,000,000.  2,000,000   3,000, XXXXXXXXXX,000   3,000, XXXXXXXXXX,000   3,000, XXXXXXXXXX,000  3,000, XXXXXXXXXX,000Calculate the payback period of each project and based on this criterion, indicate which project you would recommend for acceptance.

Ishmeet Singh · Accepted Answer

TRADE OFF THEORY:
The trade of theory basically emphasize upon the fact that for a project finance how much is the company planning to finance the project related activities via Debt and how much via equity the whole and sole idea behind the theory is that the enterprise tends to extract the marginal benefits of taking Debt such that a potential tax shield can be developed and project value can be enhanced.
MODIGILANI MILLER THEOREM:
The theorem says that the valuation of the two projects will be based on its ability to generate future cash flows and underlying assets and not by the way it is financed which is the dominant aspect of this study and hence we have adopted the same approach in our analysis.
ANALYSIS:

Given company: tyro payments Ltd OPTIMAL LEVERAGE ANALYSIS Your group should discuss the implications of the various capital structure theories for optimal capital structure as they apply to your...

Solution

Answer To This Question Is Available To Download

Related Questions & Answers

Submit New Assignment