公司理财Chap011课件.ppt

CostofCapital 11 Chapter11 Outline CostofCapitalCostofDebtCostofPreferredStockCostofCommonEquity CommonStockRetainedEarningsOptimumCapitalStructureMarginalCostofCapitalTheSecurityofMarketLineSummaryandConclusions PPT11 2 1 2 CostofCapital ThecostofcapitalrepresentstheoverallcostoffuturefinancingtothefirmThecostofcapitalisnormallytherelevantdiscountratetouseinanalyzinganinvestmentItrepresentstheminimalacceptablereturnfromtheinvestmentIfyourcostoffundsis10 youmustearnatleast10 onyourinvestmentstobreakeven ThecostofcapitalisaweightedaverageofthevarioussourcesoffundsintheformofdebtandequityWACC WeightedAverageCostofCapital PPT11 3 1 3 Stepsinmeasuringafirm scostofcapital 1 Computethecostofeachsourceofcapital 2 Assignweightstoeachsource Conversionofhistoricalcostofcapitalstructuretomarketvaluesmayberequired 3 Computetheweightedaverageofthecomponentcosts 1 4 CostofCapital BakerCorporation 1 5 CostofDebt Measuredbyinterestrate oryield paidtobondholdersExample 1 000bondpaying 100annualinterest 10 yieldCalculationiscomplexdiscountrateorpremiumfromparvaluebondsTodeterminethecostofanewdebtinthemarketplace Thefirmwillcomputetheyieldonitscurrentlyoutstandingdebt 1 6 ApproximateYieldtoMaturity Y Annualinterestpayment Numberofyearstomaturity0 6 Priceofthebond 0 4 Principalpayment Assuming Y 101 50 20 6 940 4 1 000 101 50 20 564 400Y 101 50 3 104 50 10 84 964 964 Principalpayment Priceofthebond 1 000 940 60 1 7 Taxandflotationcostconsideration Market determinedyieldsonvariousfinancialinstrumentswillequalthecostofthoseinstrumentstothefirmwithadjustmenttaxandflotationcostconsideration 1 8 AdjustingYieldforTaxConsiderations Yieldtomaturityindicateshowmuchthefirmhastopayonabefore taxbasisInterestpaymentonadebtisatax deductibleexpenseDuetothis thetruecostislessthanthestatedcost 1 9 AdjustingYieldforTaxConsiderations cont d Theafter taxcostofdebtiscalculatedasshownbelow Assuming 1 10 YieldofPreferredStock Preferredstock hasafixeddividend similartodebt hasnomaturitydatedividendsarenottaxdeductibleandareexpectedtobeperpetualorinfiniteYieldofpreferredstock annualdividendpriceofstockYieldofnewpreferredstock annualdividendprice flotationcostsFlotationcosts sellinganddistributioncosts suchassalescommissions forthenewsecurities PPT11 6 1 11 CostofPreferredStock cont d Thecostofpreferredstockisasfollows Where Costofpreferredstock Annualdividendonpreferredstock Priceofpreferredstock F Floatation orsellingcostAssumingannualdividendas 10 50 preferredstockis 100 andflotation orsellingcostis 4 Effectivecostis 10 50 10 50 10 94 100 4 96 1 12 CostofCommonEquity ValuationApproach Indeterminingthecostofcommonstock thefirmmustbesensitivetopricingandperformancedemandsofcurrentandfuturestockholdersDividendvaluationmodel Where Priceofthestocktoday Dividendattheendoftheyear orperiod Requiredrateofreturn g ConstantgrowthrateindividendsAssuming 2 40andg 7 equals12percent 2 7 5 7 12 40 1 13 AlternateCalculationoftheRequiredReturnonCommonStock Capitalassetpricingmodel CAPM Where Requiredreturnoncommonstock Risk freerateofreturn usuallythecurrentrateonTreasurybillsecurities Betacoefficient measuresthehistoricalvolatilityofanindividualstock sreturnrelativetoastockmarketindex returninthemarketasmeasuredbyanapproximateindexAssuming 5 5 12 1 0 wouldbe 5 5 1 0 12 5 5 5 5 1 0 6 5 5 5 6 5 12 1 14 CostofRetainedEarnings Sourcesofcapitalforcommonstockequity Purchaserofthenewshares externalsourceRetainedearnings internalsourceRepresentthepresentandpastearningsofthefirmminuspreviouslydistributeddividendsBelongtothecurrentstockholders maybepaidintheformofdividendsorreinvestedinthefirmReinvestmentsrepresentasourceofequitycapitalsuppliedbythecurrentstockholdersAnopportunitycostisinvolved 1 15 CostofRetainedEarnings cont d Thecostofretainedearningsisequivalenttotherateofreturnonthefirm scommoncostrepresentingtheopportunitycostrepresentsboththerequiredrateofreturnoncommonstock andthecostofequityintheformofretainedearningsForeaseofreference Costofcommonequityintheformofretainedearnings Dividendattheendofthefirstyear 2 Priceofstocktoday 40g Constantgrowthrateindividends 7 2 7 5 7 12 40 1 16 CostofNewCommonStock Aslightlyhigherreturnthan representingtherequiredrateofreturnofpresentstockholders isexpectedNeededtocoverthedistributioncostsofthenewsecuritiesCommonstockNewcommonstock 1 17 CostofNewCommonStock cont d Assuming 2 40 F Flotationorsellingcosts 4andg 7 2 7 40 4 2 7 36 5 6 7 12 6 1 18 OverviewofCommonStockCosts 1 19 OptimumCapitalStructure Theoptimum best situationisassociatedwiththeminimumoverallcostofcapital OptimumcapitalstructuremeansthelowestWACCUsuallyoccurswith40 70 debtinafirm scapitalstructureWACCisalsoreferredtoastherequiredrateofreturnorthediscountrateBaseduponthemarketvalueratherthanthebookvalueofthefirm sdebtandequity PPT11 8 1 20 OptimalCapitalStructure WeightingCosts cont d Assessmentofdifferentplans nextslide FirmisabletoinitiallyreduceweightedaveragecostofcapitalwithdebtfinancingBeyondPlanB continueduseofdebtbecomesunattractiveandgreatlyincreasescostsofsourcesoffinancing 1 21 OptimalCapitalStructure WeightingCosts cont d Cost After tax WeightsWeightedCostFinancialPlanA Debt 6 5 20 1 3 Equity 12 0809 610 9 FinancialPlanB Debt 7 0 40 2 8 Equity 12 5607 510 3 FinancialPlanC Debt 9 0 60 5 4 Equity 15 0406 011 4 1 22 CostofCapitalCurve 1 23 DebtasaPercentageofTotalAssets 2006 1 24 Capitalacquisitionandinvestmentdecisionmaking Thediscountrateusedinevaluatingcapitalprojectsshouldbetheweightedaveragecostofcapital Ifthecostofcapitalisearnedonallprojects theresidualclaimantsoftheearningsstream theowners willreceivetheirrequiredrateofreturn Iftheoverallreturnofthefirmislessthanthecostofcapital theownerswillreceivelessthantheirdesiredrateofreturnbecauseprovidersofdebtcapitalmustbepaid Formostfirms thecostofcapitalisfairlyconstantwithinareasonablerangeofdebt equitymixes Changesinmoneyandcapitalmarketconditions supplyanddemandformoney however causethecostofcapitalforallfirmstovaryupwardanddownwardovertime 1 25 Costofcapitalovertime Costofcapital Ka x y Debt equitymix percent Kat Kat 1 Kat 2 1 26 InvestmentProjectsAvailabletotheBakerCorporation 1 27 CostofcapitalandinvestmentprojectsfortheBakerCorporation 1 28 TheMarginalCostofCapital ThemarketmaydemandahighercostofcapitalforeachamountoffundrequiredifalargeamountoffinancingisrequiredEquity ownership capitalisrepresentedbyretainedearningsRetainedearningscannotgrowindefinitelyasthefirm scapitalneedstoexpandRetainedearningsislimitedtotheamountofpastandpresentearningsthatcanberedeployedintoinvestments 1 29 TheMarginalCostofCapital cont d Assumptions 60 istheamountofequitycapitalafirmmustmaintaintokeepabalancebetweenfixedincomesecuritiesandownershipinterestBakerCorporationhas 23 40millionofretainedearningavailableforinvestmentThereisadequateretainedearningtosupportthecapitalstructureasshownbelow Assuming X Retainedearnings PercentofretainedearningsinthecapitalstructureWhereXrepresentsthesizeofthecapitalstructurethatretainedearningswillsupportX 23 40million 39million 60 1 30 CostsofCapitalforDifferentAmountsofFinancing 1 31 IncreasingMarginalCostofCapital BothandrepresentthecostofcapitalThemcsubscriptafterKindicatestheincreaseincostofcapitalIncreaseisbecausecommonequityisnowintheformofnewcommonstockratherthanretainedearningsTheaftertaxcostofthenewcommonstockismoreexpensivethanretainedearningsbecauseofflotationcosts 1 32 IncreasingMarginalCostofCapital cont d Equationforthecostofnewcommonstock 2 7 2 7 5 6 7 12 6 40 4 36The 50millionfigurecanbederivedthus Z Amountoflower costdebt PercentofdebtinthecapitalstructureZ 15million 50million 30WhereZrepresentsthesizeofthecapitalstructureinwhichlower costdebtcanbeused 1 33 CostofCapitalforIncreasingAmountsofFinancing 1 34 ChangesintheMarginalCostsofCapital 1 35 PPT11 16 MarginalcostofcapitalandBakerCorporationinvestmentalternatives 1 36 CostofComponentsintheCapitalStructure 1 37 BasicformoftheCAPM ThebasicformoftheCAPMisalinearrelationshipbetweenreturnsonindividualstocksandthemarketovertime Usingleastsquaresregressionanalysis thereturnKj Rm eWhere Kj returnonindividualcommonstockofcompany Alpha theinterceptonthey axis Beta thecoefficientRm Returnonthestockmarkete Errortermoftheregressionequation 1 38 RateofReturnonStockYearPAIMarket1 12 0 10 0 2 16 018 03 20 016 04 16 010 05 6 08 0Meanreturn14 0 12 4 Standarddeviation4 73 3 87 PPT11 18 Table11A 1PerformanceofPAIandthemarket 1 39 LinearregressionofreturnsbetweenPAIandthemarket 1 40 YearKjRm1 12 10 2 16 18 3 20 16 4 16 10 5 6 8 70 62 KjRm Kj Rm Rm2 Rm 29364 3408443 844 n KjRm KjRm5 936 4 340 j n Rm2 Rm 25 844 3 844 Kj Rm70 0 9 62 n5 PPT11 20 LinearregressionofreturnsbetweenPAIandthemarket 1 41 LinearregressionofreturnsbetweenPAIandthemarket CalculatorMode StatInput10 x y 12Data18 x y 16Data16 x y 20Data10 x y 16Data8 x y 6Data2ndFagives2 792ndFbgives 902ndFrgives 74 Notethatthevaluesforthexaxis Rm areinputfirstThisisthealphacoefficientThisisthebetacoefficientThisisthecorrelationcoefficient ameasureofhowwelltheformuladescribestherelationship Thecloserto1 00 thebetterthefit PPT11 21 1 42 ImprovedCAPM riskpremiummodel InvestorsexpecthigherreturnsifhigherrisksaretakenKj Rf Rm Rf Where Kj RequiredreturnonCommonStockRf Risk freerateofreturn Betacoefficient Thebetameasuresthehistoricalvolatilityofanindividualstock sreturnrelativetoastockmarketindex Abetagreaterthan1indicatesgreatervolatility pricemovements thanthemarket whilethereversewouldbetrueforabetalessthan1 Rm Rf Premiumorexcessreturnofthemarketversustherisk freerate Rm Rf Expectreturnabovetherisk freerateforthestockofcompanyj giventhelevelofrisk 1 43 Thesecuritymarketline SML 1 44 Requiredratesofreturn percent 0 5 1 0 1 5 2 0 20 018 016 014 012 010 07 55 5 Rf1Rf0 SML1 Beta risk Rfincreased2 SML0 Thesecuritymarketlineandchanginginterestrates 1 45 0 5 1 0 1 5 2 0 Rf PPT11 24 Thesecuritymarketlineandchanginginvestorexpectations 1 46 Netincome NI approach Costofc