American Home Products Case Study

|American Home Products |October 3 |

| |2011 |

|American Home Products Corporation (AHP) manages a wide range of businesses, including drugs, food |CASE STUDY |

|products and housewares and household products. The company maintained a conservative capital structure | |

|policy during Laporte’s tenure that the company was run virtually without debt. Laporte’s has been very | |

|successful with this capital structure providing stable, consistent growth and profitability. The growth| |

|rate has been in the range of 10-15% and ROE was about 30%. The company aimed to increase shareholder | |

|value and one way to achieve this goal was by increasing debt and reducing equity. Our paper aims to | |

|find out the optimal capital structure of this company and to study on the practical aspects of | |

|determining an optimal debt ratio for the company. | |

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