Corporate Finance Essay Example | Topics and Well Written Essays - 500 words - 6

Corporate Finance - Essay ExampleDue to recessive conditions and down side of economy, there is no immediate chance of recovery. Accordingly, Qantas Airways, which has leveraged beta of 1.25 is certainly a more seeky party compared to any other company in the board.Above table suggests that business risks associated are lowest with Telstra Corp. and Coca Cola companies for having lowest beta of 0.16 and 0.15 respectively. Highest business risks are associated with BHP Billiton and Rio Tinto with beta of 0.52 and 0.43 respectively. As table indicates for the companies where finance risks are low (like CSL and BHP Billiton), business risk is high and the companies with high finance risk (like Coca-Cola and Telstra), business risk is low. Thus when we compare business risk with finance risk, we find that both are not consistent.Further, comparing the figures of shareholders return of BHP Billiton and Coca Cola, we find that both have given approximately same returns however, there is a vast difference between their business risks and financial risks profiles. Obviously, they are following Modigliani and Miller theorem that value of the companies are independent of its uppercase structure.3. BHP Billiton and Rio Tinto though belong to the same industry sector they have vastly different debt-equity ratios. Rio Tinto is a high leveraged company and its return on equity in percentage terms is less than that of BHP Billiton, which indicates that servicing cost of debt lowers down the percentage return on equity. In other words we can say that higher(prenominal) leveraging does not bring any additional return to the equity holders.Total shareholders return too in case of Rio Tinto is lonesome(prenominal) slightly less compared to that of BHP Billitons shareholders return. Despite large percentage difference in return on equity, there is not a proportionate difference on the value of total shareholders return.In short, above set of Australian companies do not seem to