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Essay / Research Paper Abstract
This 6 page paper looks at the capital structure of Ohio Casualty Corp (OCAS), calculates the cost of capital for the company and considers what changes may or may not occur if the capital structure was changed. The paper then looks at what impact a change may have on market share and assesses the level of the cost of capital against the industry and competition. The bibliography cites 3 sources.
Page Count:
6 pages (~225 words per page)
File: TS14_TEohiocorp.rtf
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Unformatted sample text from the term paper:
structure and the cost of capital. By looking at Ohio Casualty Corp (OCAS) we can consider how the capital structure influences the cost of capital. The way that a company
is funded is seen as important by some. Capital will come from one of two sources, it will either be equity, this is the shareholders funds and money that the
company owns, or it will be debt, wither though loans or possibly with the use of preference shares which are usually recoded in the debt figures. The proportion of debt
to equity is known as the debt equity ratio. The way this is calculated is the long term debt, which in this case
will usually include any preferences shares that have been issued, which is then expressed as a percentage of the total equity. This gives us an indication of the approach of
the company and also the debt burden. Where there are higher ratios it is usually expected that there will be higher returns to justify the higher borrowing (Elliott and Elliott,
1998). If we look at the capital structure of Ohio Casualty Corp we have a total capital base of $5,763.1 million1 this is made up of $4,336.7 debt
and $1,426.4 in equity. This means that 77.3% of the company capital is debt and only 22.7% is equity. Using these figures and with the accounts we can calculate the
cost of capital, looking at the cost of debt and the cost of equity. For this we will take the interest payments as the cost of the debt and the
dividend payments as the cost of equity. The cost of the interest is given as $157.7 million, however there are also fees relating to the debt and we will include
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