Cost of Capital and Equity Markets (Other (Not Listed) Sample)
Cost of Capital
Please use original writing.
Please provide American references that have current URLs and can be verified on the internet. Please use some references from the background information attached.
In light of the Enron, Worldcom, option back dating, government bailouts/nationalizations and Madoff scandals, do you think U.S. equity markets are cleaner and more reliable than stock markets in the rest of the world?
i) Please note that this is an MBA course so you must show and demonstrate your ability to provide reasoning for your response to discussion questions.
ii) It is also required that all the students participate on a regular basis and with some serious thoughts; that is, all the students are required to respond to minimum of two other students’ postings with some serious thoughts. In addition, all the students must provide their own answers to Discussion questions
Cost of Capital and Equity Markets
Course: FIN501 MOD4 Discussion Cost of Capital
The capital structure of a business integrates the debt, equity financing mix, and this then affects the business and financial risk (Pearson Learning, 2014). The financial risk has a direct impact on equity financing with variability in earnings given the use of securities with a fixed rate of return (Pearson Learning, 2014). At the same time, increasing the level of debt leaves a firm with less income to distribute to the stock brokers since there is a higher level of principal and interest payments (Pearson Learning, 2014). The financial risk is also associated with the likelihood of insolvency to shareholders when the financial risk is at a high level to the extent that leveraging becomes unsustainable.
Despite the US stock market having been bailed out following the 2008/2009 global financial crisis, the market is still more reliable compared to the other stock markets. The US stock market has increasingly become transparent following the implementation of Sarbanes-Oxley Act (SOX), while its efficiency and competitiveness make the stock market reliable. At the same time, the government is unlikely to influence the markets in the long-term and this has resulted in the market efficiency with the demand and supply of securities the driving force for changes in prices. The stock market intervention by the U.S government only happens during extraordinary circumstances including the bailouts.
The Enron, WorldCom and Madoff scandals represents the few instances when...
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