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M&M Pizza Case Solution & Answer

Moe Miller, the new CEO of M & M Pizza, plans to change the capital structure of the company to reduce the cost of capital. With the cost of debt at 4% and the cost of capital of 8%, the addition of a lower cost of funds through debt seems to be obvious. The case provides a simple framework for understanding the powerful intuition behind the basic propositions of the capital structure irrelevance of Modigliani and Miller (1958). The case is written as an introductory experience to fiscal policy. Students are required to produce simple capital cost estimates and estimate the value of debt and equity recapitalization in various scenarios. As the company is very simple and works in an almost perfect market, the calculations only require students to be comfortable with the firm’s capital cost estimate.
by
Michael J. Schill
Source: Darden School of Business
3 pages.
Date Posted: March 11, 2013. Prod #: UV6629-PDF-ENG
M & M pizza Case Solution

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