Case Solution for M&M Pizza

Complete Case details are given below :

Case Name :      AM&M Pizza
Authors :           Michael J. Schill
Source :             Darden School of Business
Case ID :           UV6629
Discipline :        Finance
Case Length :    03 pages
Solution Sample availability : YES
Plagiarism : NO (100% Original work)
Description for case is given below :
Moe Miller, the new managing director of M&M Pizza, is considering changing the company’s capital structure to reduce the cost of capital. With the cost of debt at 4% and the cost of equity at 8%, adding a cheaper cost of funds through debt appears to be obvious. The case provides a simple framework for understanding the powerful intuition behind the foundational capital structure irrelevance propositions of Modigliani and Miller (1958). The case is written as an introductory experience in financial policy. Students are required to generate simple estimates of the cost of capital and estimate the value of debt and equity claims under various recapitalization scenarios. As the business is very simple and operates in a quasi-perfect market, the calculations require only that students are comfortable with the estimation of firm cost of capital.
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