公司理财英文版课件Chap016

Chapter16FinancialLeverageandCapitalStructurePolicy,McGraw-Hill/Irwin,Copyright2010byTheMcGraw-HillCompanies,Inc.Allrightsreserved.,KeyConceptsandSkills,UnderstandtheeffectoffinancialleverageoncashflowsandthecostofequityUnderstandtheimpactoftaxesandbankruptcyoncapitalstructurechoiceUnderstandthebasiccomponentsofthebankruptcyprocess,16-2,ChapterOutline,TheCapitalStructureQuestionTheEffectofFinancialLeverageCapitalStructureandtheCostofEquityCapitalMtherefore,valuedoesntchangePropositionIITheWACCofthefirmisNOTaffectedbycapitalstructure,16-14,CaseI-Equations,WACC=RA=(E/V)RE+(D/V)RDRE=RA+(RARD)(D/E)RAisthe“cost”ofthefirmsbusinessrisk,i.e.,theriskofthefirmsassets(RARD)(D/E)isthe“cost”ofthefirmsfinancialrisk,i.e.,theadditionalreturnrequiredbystockholderstocompensatefortheriskofleverage,16-15,Figure16.3,16-16,CaseI-Example,DataRequiredreturnonassets=16%;costofdebt=10%;percentofdebt=45%Whatisthecostofequity?RE=16+(16-10)(.45/.55)=20.91%Supposeinsteadthatthecostofequityis25%,whatisthedebt-to-equityratio?25=16+(16-10)(D/E)D/E=(25-16)/(16-10)=1.5Basedonthisinformation,whatisthepercentofequityinthefirm?E/V=1/2.5=40%,16-17,TheCAPM,theSMLandPropositionII,Howdoesfinancialleverageaffectsystematicrisk?CAPM:RA=Rf+A(RMRf)WhereAisthefirmsassetbetaandmeasuresthesystematicriskofthefirmsassetsPropositionIIReplaceRAwiththeCAPMandassumethatthedebtisriskless(RD=Rf)RE=Rf+A(1+D/E)(RMRf),16-18,BusinessRiskandFinancialRisk,RE=Rf+A(1+D/E)(RMRf)CAPM:RE=Rf+E(RMRf)E=A(1+D/E)Therefore,thesystematicriskofthestockdependson:Systematicriskoftheassets,A,(Businessrisk)Levelofleverage,D/E,(Financialrisk),16-19,CaseIICashFlow,InterestistaxdeductibleTherefore,whenafirmaddsdebt,itreducestaxes,allelseequalThereductionintaxesincreasesthecashflowofthefirmHowshouldanincreaseincashflowsaffectthevalueofthefirm?,16-20,CaseII-Example,16-21,InterestTaxShield,AnnualinteresttaxshieldTaxratetimesinterestpayment6,250in8%debt=500ininterestexpenseAnnualtaxshield=.34(500)=170PresentvalueofannualinteresttaxshieldAssumeperpetualdebtforsimplicityPV=170/.08=2,125PV=D(RD)(TC)/RD=DTC=6,250(.34)=2,125,16-22,CaseIIPropositionI,ThevalueofthefirmincreasesbythepresentvalueoftheannualinteresttaxshieldValueofaleveredfirm=valueofanunleveredfirm+PVofinteresttaxshieldValueofequity=ValueofthefirmValueofdebtAssumingperpetualcashflowsVU=EBIT(1-T)/RUVL=VU+DTC,16-23,Example:CaseIIPropositionI,DataEBIT=25million;Taxrate=35%;Debt=$75million;Costofdebt=9%;Unleveredcostofcapital=12%VU=25(1-.35)/.12=$135.42millionVL=135.42+75(.35)=$161.67millionE=161.6775=$86.67million,16-24,Figure16.4,16-25,CaseIIPropositionII,TheWACCdecreasesasD/EincreasesbecauseofthegovernmentsubsidyoninterestpaymentsRA=(E/V)RE+(D/V)(RD)(1-TC)RE=RU+(RURD)(D/E)(1-TC)ExampleRE=12+(12-9)(75/86.67)(1-.35)=13.69%RA=(86.67/161.67)(13.69)+(75/161.67)(9)(1-.35)RA=10.05%,16-26,Example:CaseIIPropositionII,Supposethatthefirmchangesitscapitalstructuresothatthedebt-to-equityratiobecomes1.Whatwillhappentothecostofequityunderthenewcapitalstructure?RE=12+(12-9)(1)(1-.35)=13.95%Whatwillhappentotheweightedaveragecostofcapital?RA=.5(13.95)+.5(9)(1-.35)=9.9%,16-27,Figure16.5,16-28,CaseIII,NowweaddbankruptcycostsAstheD/Eratioincreases,theprobabilityofbankruptcyincreasesThisincreasedprobabilitywillincreasetheexpectedbankruptcycostsAtsomepoint,theadditionalvalueoftheinteresttaxshieldwillbeoffsetbytheincreaseinexpectedbankruptcycostAtthispoint,thevalueofthefirmwillstarttodecrease,andtheWACCwillstarttoincreaseasmoredebtisadded,16-29,BankruptcyCosts,DirectcostsLegalandadministrativecostsUltimatelycausebondholderstoincuradditionallossesDisincentivetodebtfinancingFinancialdistressSignificantproblemsinmeetingdebtobligationsFirmsthatexperiencefinancialdistressdonotnecessarilyfileforbankruptcy,16-30,MoreBankruptcyCosts,IndirectbankruptcycostsLargerthandirectcosts,butmoredifficulttomeasureandestimateStockholderswanttoavoidaformalbankruptcyfilingBondholderswanttokeepexistingassetsintactsotheycanatleastreceivethatmoneyAssetslosevalueasmanagementspendstimeworryingaboutavoidingbankruptcyinsteadofrunningthebusinessThefirmmayalsolosesales,experienceinterruptedoperationsandlosevaluableemployees,16-31,Figure16.6,16-32,Figure16.7,16-33,Conclusions,CaseInotaxesorbankruptcycostsNooptimalcapitalstructureCaseIIcorporatetaxesbutnobankruptcycostsOptimalcapitalstructureisalmost100%debtEachadditionaldollarofdebtincreasesthecashflowofthefirmCaseIIIcorporatetaxesandbankruptcycostsOptimalcapitalstructureispartdebtandpartequityOccurswherethebenefitfromanadditionaldollarofdebtisjustoffsetbytheincreaseinexpectedbankruptcycosts,16-34,Figure17.8,16-35,ManagerialRecommendations,ThetaxbenefitisonlyimportantifthefirmhasalargetaxliabilityRiskoffinancialdistressThegreatertheriskoffinancialdistress,thelessdebtwillbeoptimalforthefirmThecostoffinancialdistressvariesacrossfirmsandindustries,andasamanageryouneedtounderstandthecostforyourindustry,16-36,Figure16.9,16-37,TheValueoftheFirm,Valueofthefirm=marketedclaims+nonmarketedclaimsMarketedclaimsaretheclaimsofstockholdersandbondholdersNonmarketedclaimsaretheclaimsofthegovernmentandotherpotentialstakeholdersTheoverallvalueofthefirmisunaffectedbychangesincapitalstructureThedivisionofvaluebetweenmarketedclaimsandnonmarketedclaimsmaybeimpactedbycapitalstructuredecisions,16-38,ThePecking-OrderTheory,Theorystatingthatfirmsprefertoissuedebtratherthanequityifinternalfinancingisinsufficient.Rule1UseinternalfinancingfirstRule2Issuedebtnext,newequitylastThepecking-ordertheoryisatoddswiththetradeofftheory:ThereisnotargetD/EratioProfitablefirmsuselessdebtCompanieslikefinancialslack,16-39,ObservedCapitalStructure,CapitalstructuredoesdifferbyindustryDifferencesaccordingtoCostofCapital2008YearbookbyIbbotsonAssociates,Inc.LowestlevelsofdebtComputerswith5.61%debtDrugswith7.25%debtHighestlevelsofdebtCabletelevisionwith162.03%debtAirlineswith129.40%debt,16-40,WorktheWebExample,Youcanfindinformationaboutacompanyscapitalstructurerelativetoitsindustry,sectorandtheS&P500atReutersClickonthewebsurfertogotothesiteChooseacompanyandgetaquoteChooseRatioComparisons,16-41,BankruptcyProcessPartI,BusinessfailurebusinesshasterminatedwithalosstocreditorsLegalbankruptcypetitionfederalcourtforbankruptcyTechnicalinsolvencyfirmisunabletomeetdebtobligationsAccountinginsolvencybookvalueofequityisnegative,16-42,BankruptcyProcessPartII,LiquidationChapter7oftheFederalBankruptcyReformActof1978Trusteetakesoverassets,sellsthemanddistributestheproceedsaccordingtotheabsolutepriorityruleReorganizationChapter11oftheFederalBankruptcyReformActof1978Restructurethecorporationwithaprovisiontorepaycreditors,1