The Pink Balance Sheet: An Easy Way to Teach Capital Structure Basics

Business Education & Accreditation, V.10 (1), pp. 21-37

17 Pages Posted: 5 Mar 2019

See all articles by Lynda Livingston

Lynda Livingston

University of Puget Sound; Four Horsemen Investments

Date Written: 2018

Abstract

Students of corporate finance must learn the basics of capital structure theory. However, most textbook discussions are confusing and include too many equations. We present a simple model of tax-related capital structure basics that incorporates only three components: a market-value balance sheet, colors that represent risk, and one equation. Students mastering the pink balance sheet should be able to remember easily the various implications of basic capital structure models, including beta relationships such as the Hamada equation.

Keywords: Capital Structure, Beta Levering, Hamada Equation

JEL Classification: G32

Suggested Citation

Livingston, Lynda, The Pink Balance Sheet: An Easy Way to Teach Capital Structure Basics (2018). Business Education & Accreditation, V.10 (1), pp. 21-37, Available at SSRN: https://ssrn.com/abstract=3241556

Lynda Livingston (Contact Author)

University of Puget Sound ( email )

1500 N Warner St.
Tacoma, WA 98416
United States

Four Horsemen Investments ( email )

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