Corporate Debt Financing: Impact and Strategies

This lecture explores the rise of debt as a financing tool for corporations post the 2008 financial crisis, analyzing the significant increase in corporate bond issuances. It delves into the tax advantages of debt over equity, the market's response to leverage changes, and the conversion of convertible debt into equity. The lecture also covers the valuation of interest tax shields, the effects of debt on firm value, and the methods to incorporate tax benefits into firm valuation. Strategies like leveraged recapitalization and debt-equity ratios are discussed, along with the calculation of default costs and the impact of debt on the weighted average cost of capital.