Corporate Finance Spring 2025 - Session 19: The APV and Peer Group Approaches to Financing Mix

We started this class by first looking at the determinants of optimal debt rations and then looked at how to optimize debt mix with the adjusted present value approach, where we begin with the unlevered firm value, and then add the tax benefits of debt and net out expected bankruptcy costs. While you can download the APV spreadsheet that I have online, I don’t really see a need to do the APV analysis of your company’s capital structure, since the expected bankruptcy cost is a black box. We then looked at peer group analysis, where companies decide how much to borrow by looking at what other companies in the sector do. You can check out the debt ratios for other companies in your sector by going to my website: US industry averages: http://www.stern.nyu.edu/~adamodar/pc/datasets/dbtfund.xls Global industry averages: http://www.stern.nyu.edu/~adamodar/pc/datasets/dbtfundGlobal.xls I also mentioned market-wide regressions on the debt ratios of companies. You can find those at https://people.stern.nyu.edu/adamodar/New_Home_Page/datafile/dbtreg25.htm Slides: https://nyu.box.com/s/imlitrcrwhm7f1hcongohfneyb74key5 Post class test: https://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session19test.pdf Post class solution: https://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session19soln.pdf