By Edward I. Altman
A accomplished examine the large development and evolution of distressed debt, company financial disaster, and credits chance default
This Third Edition of the main authoritative finance booklet at the subject updates and expands its dialogue of company misery and financial disaster, in addition to the comparable markets facing high-yield and distressed debt, and provides cutting-edge research and examine at the expenses of financial ruin, credits default prediction, the post-emergence interval functionality of bankrupt organizations, and extra
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Extra resources for Corporate Financial Distress and Bankruptcy: Predict and Avoid Bankruptcy, Analyze and Invest in Distressed Debt , 3rd Edition
The new equity value of $2,268 (7 times earnings of $324) plus $4,600 in debt (the old debt is now selling at a discount) raises the ﬁrm’s total value by $836 to $6,868. This is a 14 percent increase. The break-even ﬁrm value point, comparing the “before” situation to “after” recapitalization, would manifest if the equity multiplier fell to about 4 times instead of 7 times. 4 × 3,000) instead of $836. We are therefore implicitly assuming bankruptcy and agency costs of $364. 4 (traditional approach).
This is because of the massive restructuring changes that took place in the United States in the 1980s and the explosion in corporate governance and capital structure issues in the United States and Europe since. Numerous texts and articles are constantly being written extolling the virtues of value-enhancing techniques. The purpose of this chapter is to examine valuation from the perspective of the ﬁrm’s capital structure. We analyze capital structure issues within the context of massive changes brought about by leveraged restructurings, particularly leveraged buyouts (LBOs).
At some point, however, the combination of increasing costs of debt and equity would begin to raise the overall cost (its capitalization rate) and lower the ﬁrm’s value. And some empirical tests, notably by Weston (1963), showed that leverage did indeed impact the ﬁrm’s overall cost of capital. Two and a half decades later, Weston (1989) again reﬂected on the M&M capital structure controversy. And of course, most corporate ﬁnance textbooks carry the important distinctions between M&M and traditional theory.
Corporate Financial Distress and Bankruptcy: Predict and Avoid Bankruptcy, Analyze and Invest in Distressed Debt , 3rd Edition by Edward I. Altman