From the course: Corporate Finance Foundations

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Introducing long-term financing

Introducing long-term financing

From the course: Corporate Finance Foundations

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Introducing long-term financing

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- U.S. census data revealed that the median selling price for new homes sold in the United States in the month of April, 2019 was about $342,000. - One of the key questions in corporate finance is whether you can impact the value of an asset, such as a house or an entire company, by strategically choosing the mix of borrowing and owner investment used to finance the purchase of the asset. This topic area is called capital structure. - Now let's illustrate this topic of capital structure using a hypothetical house costing $342,000. Assume that we have two ways to finance the purchase of the house. - [Narrator 2] Number one, use personal savings to pay cash for the entire amount. So you have no mortgage loan on the house at all. You own the house free and clear. - [Narrtor 1] And number two, use personal savings to pay for a small amount of the purchase price, say $30,000, and take out a large mortgage for the remaining $312,000. - Okay, let's think about your personal experience with…

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