公司理财第十六章.ppt

Chapter16FinancialLeverageandCapitalStructurePolicy McGraw Hill Irwin Copyright 2010byTheMcGraw HillCompanies Inc Allrightsreserved KeyConceptsandSkills UnderstandtheeffectoffinancialleverageoncashflowsandthecostofequityUnderstandtheimpactoftaxesandbankruptcyoncapitalstructurechoiceUnderstandthebasiccomponentsofthebankruptcyprocess 16 2 ChapterOutline TheCapitalStructureQuestionTheEffectofFinancialLeverageCapitalStructureandtheCostofEquityCapitalM MPropositionsIandIIwithCorporateTaxesBankruptcyCostsOptimalCapitalStructureThePieAgainThePecking OrderTheoryObservedCapitalStructuresAQuickLookattheBankruptcyProcess 16 3 CapitalRestructuring Wearegoingtolookathowchangesincapitalstructureaffectthevalueofthefirm allelseequalCapitalrestructuringinvolveschangingtheamountofleverageafirmhaswithoutchangingthefirm sassetsThefirmcanincreaseleveragebyissuingdebtandrepurchasingoutstandingsharesThefirmcandecreaseleveragebyissuingnewsharesandretiringoutstandingdebt 16 4 ChoosingaCapitalStructure Whatistheprimarygoaloffinancialmanagers MaximizestockholderwealthWewanttochoosethecapitalstructurethatwillmaximizestockholderwealthWecanmaximizestockholderwealthbymaximizingthevalueofthefirmorminimizingtheWACC 16 5 TheEffectofLeverage HowdoesleverageaffecttheEPSandROEofafirm Whenweincreasetheamountofdebtfinancing weincreasethefixedinterestexpenseIfwehaveareallygoodyear thenwepayourfixedcostandwehavemoreleftoverforourstockholdersIfwehaveareallybadyear westillhavetopayourfixedcostsandwehavelessleftoverforourstockholdersLeverageamplifiesthevariationinbothEPSandROE 16 6 Example FinancialLeverage EPSandROE PartI WewillignoretheeffectoftaxesatthisstageWhathappenstoEPSandROEwhenweissuedebtandbuybacksharesofstock 16 7 Example FinancialLeverage EPSandROE PartII VariabilityinROECurrent ROErangesfrom6 to20 Proposed ROErangesfrom2 to30 VariabilityinEPSCurrent EPSrangesfrom 0 60to 2 00Proposed EPSrangesfrom 0 20to 3 00ThevariabilityinbothROEandEPSincreaseswhenfinancialleverageisincreased 16 8 Break EvenEBIT FindEBITwhereEPSisthesameunderboththecurrentandproposedcapitalstructuresIfweexpectEBITtobegreaterthanthebreak evenpoint thenleveragemaybebeneficialtoourstockholdersIfweexpectEBITtobelessthanthebreak evenpoint thenleverageisdetrimentaltoourstockholders 16 9 Example Break EvenEBIT 16 10 Example HomemadeLeverageandROE CurrentCapitalStructureInvestorborrows 500anduses 500ofherowntobuy100sharesofstockPayoffs Recession 100 0 60 1 500 10Expected 100 1 30 1 500 80Expansion 100 2 00 1 500 150Mirrorsthepayoffsfrompurchasing50sharesofthefirmundertheproposedcapitalstructure ProposedCapitalStructureInvestorbuys 250worthofstock 25shares and 250worthofbondspaying10 Payoffs Recession 25 20 1 250 30Expected 25 1 60 1 250 65Expansion 25 3 00 1 250 100Mirrorsthepayoffsfrompurchasing50sharesunderthecurrentcapitalstructure 16 11 CapitalStructureTheory ModiglianiandMiller M M TheoryofCapitalStructurePropositionI firmvaluePropositionII WACCThevalueofthefirmisdeterminedbythecashflowstothefirmandtheriskoftheassetsChangingfirmvalueChangetheriskofthecashflowsChangethecashflows 16 12 CapitalStructureTheoryUnderThreeSpecialCases CaseI AssumptionsNocorporateorpersonaltaxesNobankruptcycostsCaseII AssumptionsCorporatetaxes butnopersonaltaxesNobankruptcycostsCaseIII AssumptionsCorporatetaxes butnopersonaltaxesBankruptcycosts 16 13 CaseI PropositionsIandII PropositionIThevalueofthefirmisNOTaffectedbychangesinthecapitalstructureThecashflowsofthefirmdonotchange therefore valuedoesn tchangePropositionIITheWACCofthefirmisNOTaffectedbycapitalstructure 16 14 CaseI Equations WACC RA E V RE D V RDRE RA RA RD D E RAisthe cost ofthefirm sbusinessrisk i e theriskofthefirm sassets RA RD D E isthe cost ofthefirm sfinancialrisk 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 RM Rf Where Aisthefirm sassetbetaandmeasuresthesystematicriskofthefirm sassetsPropositionIIReplaceRAwiththeCAPMandassumethatthedebtisriskless RD Rf RE Rf A 1 D E RM Rf 16 18 BusinessRiskandFinancialRisk RE Rf A 1 D E RM Rf CAPM RE Rf E RM Rf E A 1 D E Therefore thesystematicriskofthestockdependson Systematicriskoftheassets A Businessrisk Levelofleverage D E Financialrisk 16 19 CaseII CashFlow 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 CaseII PropositionI ThevalueofthefirmincreasesbythepresentvalueoftheannualinteresttaxshieldValueofaleveredfirm valueofanunleveredfirm PVofinteresttaxshieldValueofequity Valueofthefirm ValueofdebtAssumingperpetualcashflowsVU EBIT 1 T RUVL VU DTC 16 23 Example CaseII PropositionI DataEBIT 25million Taxrate 35 Debt 75million Costofdebt 9 Unleveredcostofcapital 12 VU 25 1 35 12 135 42millionVL 135 42 75 35 161 67millionE 161 67 75 86 67million 16 24 Figure16 4 16 25 CaseII PropositionII TheWACCdecreasesasD EincreasesbecauseofthegovernmentsubsidyoninterestpaymentsRA E V RE D V RD 1 TC RE RU RU RD 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 CaseII PropositionII 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 CaseI notaxesorbankruptcycostsNooptimalcapitalstructureCaseII corporatetaxesbutnobankruptcycostsOptimalcapitalstructureisalmost100 debtEachadditionaldollarofdebtincreasesthecashflowofthefirmCaseIII corporatetaxesandbankruptcycostsOptimalcapitalstructureispartdebtandpartequityOccurswherethebenefitfromanadditionaldollarofdebtisjustoffsetbytheincreaseinexpectedbankruptcycosts 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 Youcanfindinformationaboutacompany scapitalstructurerelativetoitsindustry sectorandtheS P500atReutersClickonthewebsurfertogotothesiteChooseacompanyandgetaquoteChooseRatioComparisons 16 41 BankruptcyProcess PartI Businessfailure businesshasterminatedwithalosstocreditorsLegalbankruptcy petitionfederalcourtforbankruptcyTechnicalinsolvency firmisunabletomeetdebtobligationsAccountinginsolvency bookvalueofequityisnegative 16 42 BankruptcyProcess P