Problem:
You have been hired as a financial consultant by two firms, Alright Industries (Firm A), and Zelda Ltd. (Firm Z). Firm A is in the fast-growing microcomputer retail sales industry, while Firm Z manufactures office equipment such as pencil sharpeners, staplers, and tape dispensers. Your job is to recommend the optimal capital structure for these 2 firms. Discuss the factors that would influence your decision, and specifically how each of the factors applies to each firm.
Additional information about the 2 firms:
a. Firm A generally leases it stores, while Firm Z purchases its plants.
b. Firm A's stock is widely held, while the family of Firm Z's founder holds 40% of its stock.
c. Firm Z has a significant amount of accelerated depreciation expense each year, while Firm A has almost none.
d. Firm A has demonstrated high growth and profitability over the last few years. On the other hand, Firm Z's growth has averaged a modest 5% per year, and its profit margins and Return On Equity (ROE) have been unspectacular.
Be thorough in your discussion.
taxes, information assymetry, non interest tax shelters, depreciation, Uniqueness of assets