1. Production is the process of transforming inputs into outputs through a processing function. The main inputs are land, labor, capital and entrepreneurship.
2. In the short run, production can be modeled using a production function relating total output to variable inputs like labor while holding fixed inputs like capital constant. This shows concepts like total, average and marginal product.
3. In the long run, all inputs can be varied, shown through isoquants mapping equal output levels from different input combinations. Returns to scale analysis examines how output changes as all inputs change proportionally.
This analysis is an important tool used to optimize the capital structure for highest earnings for shareholders
It helps in understanding the sensitivity of EPS at given level of Earning before Interest & Tax under different sources of financing
It helps in analyzing how capital structure decision is important to raise the value of firm
An optimal financing structure minimizes the cost of capital and maximizes the earnings
Earning Per Share under different Capital structure plans
Plan 1 ( Only Equity Shares )
EPS = (EBIT (1−Tax rate))/(No. of Outstanding Shares)
Plan 2 ( Equity Shares & Debt )
EPS = ((EBIT −Interest) (1−Tax rate))/(No. of Outstanding Shares)
Plan 3 (Equity, Debt & Preference Shares)
EPS = ((EBIT −Interest) (1−Tax rate)−Pref. Dividend)/(No. of Outstanding Shares)
Plan 4 (Equity shares & Preference Shares)
EPS = (EBIT (1−Tax rate)−Pref. Dividend)/(No. of Outstanding Shares)
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This analysis is an important tool used to optimize the capital structure for highest earnings for shareholders
It helps in understanding the sensitivity of EPS at given level of Earning before Interest & Tax under different sources of financing
It helps in analyzing how capital structure decision is important to raise the value of firm
An optimal financing structure minimizes the cost of capital and maximizes the earnings
Earning Per Share under different Capital structure plans
Plan 1 ( Only Equity Shares )
EPS = (EBIT (1−Tax rate))/(No. of Outstanding Shares)
Plan 2 ( Equity Shares & Debt )
EPS = ((EBIT −Interest) (1−Tax rate))/(No. of Outstanding Shares)
Plan 3 (Equity, Debt & Preference Shares)
EPS = ((EBIT −Interest) (1−Tax rate)−Pref. Dividend)/(No. of Outstanding Shares)
Plan 4 (Equity shares & Preference Shares)
EPS = (EBIT (1−Tax rate)−Pref. Dividend)/(No. of Outstanding Shares)
Thank You For Waching
Subscribe to DevTech Finance
Basic tools of managerial economics for decision makingMilan Padariya
Business decision making is essentially a process of selecting the best out of alternative opportunities open to the firm. Modern business conditions are changing so fast and becoming so competitive and complex that personal business sense, intuition and experience alone are not sufficient to make appropriate business decisions. It is in this area of decision making that economic theories and tools of economic analysis contribute a great deal.
Expertsmind.com prepares microeconomics assignments, economics homework and projects by tutor’s help for all grade levels. Get solved microeconomics and economics questions with step by step answers. From qualified tutors.
Microeconomics: Introduction and basic conceptsPie GS
1.1 Meaning and definition of microeconomics
1.2 Basic microeconomic issues: scarcity, efficiency and
alternative uses of resources
1.3 Differences between microeconomics and macroeconomics
1.4 Opportunity cost, normative economics and positive
economics
1.5 Importance of microeconomics in business decision making
1.6 Economic models: meaning and use of economic models
Measuring Impact of Cost on Bioprocessingpasinclair
The first article in this periodic series reviewed the impact of cost pressures on the biopharmaceutical industry, in particular the challenges the industry faces in relation to high capital costs, complex processes, and long product development cycles
Invited Talk: C-SPIN, the Chicago Software Process Improvement Network. January 7, 2009, Schaumburg, Illinois. Overview of themes and concepts from ISSRE 2008.
Business Economics - Unit-3 IMBA Syllabus Osmania UniversityBalasri Kamarapu
PRODUCTION AND COST CONCEPTS
Theory of production
Production function
Input output combination
Short run production laws
Law of diminishing marginal returns to scale
ISO-quant curves
ISO-cost curves
Production function describes the technological relationship between inputs and output in physical terms. Study of production function is directed towards establishing the maximum output which can be achieved with given set of factors of production.