Home Videos Aswath Damodaran Session 21(MBA): More Debt Design & First Steps on Dividends

Aswath Damodaran Session 21(MBA): More Debt Design & First Steps on Dividends

When you purchase through our sponsored links, we may earn a commission. By using this website you agree to our T&Cs.

Aswath Damodaran Session 21(MBA): More Debt Design & First Steps on Dividends

Published on Apr 20, 2016

In this class, we then went through three basic approaches to debt design: an intuitive assessment of a company’s products and pricing power, an analysis of expected cash flows on a single project and a macro economic regression of firm value/operating income against interest rates, GDP, inflation and exchange rates.
Keeping in mind the objective of matching debt to assets, think about the typical investments that your firm makes and try to design the right debt for the project. If your firm has multiple businesses, design the right kind of debt for each business. In making these judgments, you should try to think about
– whether you would use short term or long term debt
– what currency your debt should be in
– whether the debt should be fixed or floating rate debt
– whether you should use straight or convertible debt
– what special features you would add to your debt to insulate the company from default
Your objective is to get the tax advantages without exposing yourself to default risk. If you want to carry this forward and do a quantitative analysis of your debt, I will send you a spreadsheet tomorrow that will help in the macro economic regressions. In the second half of the class, we started on our discussion of dividend policy. We began by looking at some facts about dividends: they are sticky, follow earnings, are affected by tax laws, vary across countries and are increasingly being supplanted by buybacks at least in the United States. We will continue the discussion of how much companies should return to investors in the next session.
Slides:
http://www.stern.nyu.edu/~adamodar/po…
Post class test: http://www.stern.nyu.edu/~adamodar/pd…
Post class test solution: http://www.stern.nyu.edu/~adamodar/pd…

Our Editorial Standards

At ValueWalk, we’re committed to providing accurate, research-backed information. Our editors go above and beyond to ensure our content is trustworthy and transparent.

Aswath Damodaran
Editor

Want Financial Guidance Sent Straight to You?

  • Pop your email in the box, and you'll receive bi-weekly emails from ValueWalk.
  • We never send spam — only the latest financial news and guides to help you take charge of your financial future.