公司理财原版英文Chap3ppt课件.ppt

Risk CostofCapital andCapitalBudgeting Chapter13 Copyright 2010bytheMcGraw HillCompanies Inc Allrightsreserved McGraw Hill Irwin KeyConceptsandSkills Knowhowtodetermineafirm scostofequitycapitalUnderstandtheimpactofbetaindeterminingthefirm scostofequitycapitalKnowhowtodeterminethefirm soverallcostofcapitalUnderstandtheimpactofflotationcostsoncapitalbudgeting ChapterOutline 13 1TheCostofEquityCapital13 2EstimatingtheCostofEquityCapitalwiththeCAPM13 3EstimationofBeta13 4Beta CovarianceandCorrelation13 5DeterminantsofBeta13 6DividendDiscountModel13 7CostofCapitalforDivisionsandProjects13 8CostofFixedIncomeSecurities13 9TheWeightedAverageCostofCapital13 10EstimatingEastmanChemical sCostofCapital13 11FlotationCostsandtheWeightedAverageCostofCapital WhereDoWeStand Earlierchaptersoncapitalbudgetingfocusedontheappropriatesizeandtimingofcashflows Thischapterdiscussestheappropriatediscountratewhencashflowsarerisky Investinproject 13 1TheCostofEquityCapital Firmwithexcesscash Shareholder sTerminalValue Paycashdividend Shareholderinvestsinfinancialasset Becausestockholderscanreinvestthedividendinriskyfinancialassets theexpectedreturnonacapital budgetingprojectshouldbeatleastasgreatastheexpectedreturnonafinancialassetofcomparablerisk Afirmwithexcesscashcaneitherpayadividendormakeacapitalinvestment TheCostofEquityCapital Fromthefirm sperspective theexpectedreturnistheCostofEquityCapital Toestimateafirm scostofequitycapital weneedtoknowthreethings Therisk freerate RF Themarketriskpremium Thecompanybeta Example SupposethestockofStansfieldEnterprises apublisherofPowerPointpresentations hasabetaof2 5 Thefirmis100 equityfinanced Assumearisk freerateof5 andamarketriskpremiumof10 Whatistheappropriatediscountrateforanexpansionofthisfirm Example SupposeStansfieldEnterprisesisevaluatingthefollowingindependentprojects Eachcosts 100andlastsoneyear UsingtheSML Anall equityfirmshouldacceptprojectswhoseIRRsexceedthecostofequitycapitalandrejectprojectswhoseIRRsfallshortofthecostofcapital ProjectIRR Firm srisk beta 5 Goodproject Badproject TheRisk freeRate Treasurysecuritiesarecloseproxiesfortherisk freerate TheCAPMisaperiodmodel However projectsarelong lived So averageperiod short term ratesneedtobeused Thehistoricpremiumoflong term 20 year ratesovershort termratesforgovernmentsecuritiesis2 So therisk freeratetobeusedintheCAPMcouldbeestimatedas2 belowtheprevailingrateon20 yeartreasurysecurities TheMarketRiskPremium Method1 UsehistoricaldataMethod2 UsetheDividendDiscountModelMarketdataandanalystforecastscanbeusedtoimplementtheDDMapproachonamarket widebasis 13 3EstimationofBeta MarketPortfolio Portfolioofallassetsintheeconomy Inpractice abroadstockmarketindex suchastheS P500 isusedtorepresentthemarket Beta Sensitivityofastock sreturntothereturnonthemarketportfolio EstimationofBeta ProblemsBetasmayvaryovertime Thesamplesizemaybeinadequate Betasareinfluencedbychangingfinancialleverageandbusinessrisk SolutionsProblems1and2canbemoderatedbymoresophisticatedstatisticaltechniques Problem3canbelessenedbyadjustingforchangesinbusinessandfinancialrisk Lookataveragebetaestimatesofcomparablefirmsintheindustry StabilityofBeta Mostanalystsarguethatbetasaregenerallystableforfirmsremaininginthesameindustry Thatisnottosaythatafirm sbetacannotchange ChangesinproductlineChangesintechnologyDeregulationChangesinfinancialleverage UsinganIndustryBeta Itisfrequentlyarguedthatonecanbetterestimateafirm sbetabyinvolvingthewholeindustry Ifyoubelievethattheoperationsofthefirmaresimilartotheoperationsoftherestoftheindustry youshouldusetheindustrybeta Ifyoubelievethattheoperationsofthefirmarefundamentallydifferentfromtheoperationsoftherestoftheindustry youshouldusethefirm sbeta Donotforgetaboutadjustmentsforfinancialleverage 13 4Beta CovarianceandCorrelation Betaisqualitativelysimilartothecovariancesincethedenominator marketvariance isaconstant Betaandcorrelationarerelated butdifferent Itispossiblethatastockcouldbehighlycorrelatedtothemarket butitcouldhavealowbetaifitsdeviationwererelativelysmall 13 5DeterminantsofBeta BusinessRiskCyclicalityofRevenuesOperatingLeverageFinancialRiskFinancialLeverage CyclicalityofRevenues Highlycyclicalstockshavehigherbetas Empiricalevidencesuggeststhatretailersandautomotivefirmsfluctuatewiththebusinesscycle Transportationfirmsandutilitiesarelessdependentonthebusinesscycle Notethatcyclicalityisnotthesameasvariability stockswithhighstandarddeviationsneednothavehighbetas Moviestudioshaverevenuesthatarevariable dependinguponwhethertheyproduce hits or flops buttheirrevenuesmaynotbeespeciallydependentuponthebusinesscycle OperatingLeverage Thedegreeofoperatingleveragemeasureshowsensitiveafirm orproject istoitsfixedcosts Operatingleverageincreasesasfixedcostsriseandvariablecostsfall Operatingleveragemagnifiestheeffectofcyclicalityonbeta Thedegreeofoperatingleverageisgivenby OperatingLeverage Sales Fixedcosts Totalcosts EBIT Sales Operatingleverageincreasesasfixedcostsriseandvariablecostsfall FinancialLeverageandBeta Operatingleveragereferstothesensitivitytothefirm sfixedcostsofproduction Financialleverageisthesensitivitytoafirm sfixedcostsoffinancing Therelationshipbetweenthebetasofthefirm sdebt equity andassetsisgivenby Financialleveragealwaysincreasestheequitybetarelativetotheassetbeta Example ConsiderGrandSport Inc whichiscurrentlyall equityfinancedandhasabetaof0 90 Thefirmhasdecidedtoleveruptoacapitalstructureof1partdebtto1partequity Sincethefirmwillremaininthesameindustry itsassetbetashouldremain0 90 However assumingazerobetaforitsdebt itsequitybetawouldbecometwiceaslarge bEquity 2 0 90 1 80 13 6DividendDiscountModel TheDDMisanalternativetotheCAPMforcalculatingafirm scostofequity TheDDMandCAPMareinternallyconsistent butacademicsgenerallyfavortheCAPMandcompaniesseemtousetheCAPMmoreconsistently Thismaybeduetothemeasurementerrorassociatedwithestimatingcompanygrowth CapitalBudgeting ProjectRisk Afirmthatusesonediscountrateforallprojectsmayovertimeincreasetheriskofthefirmwhiledecreasingitsvalue ProjectIRR Firm srisk beta Hurdlerate TheSMLcantelluswhy SupposetheConglomerateCompanyhasacostofcapital basedontheCAPM of17 Therisk freerateis4 themarketriskpremiumis10 andthefirm sbetais1 3 17 4 1 3 10 Thisisabreakdownofthecompany sinvestmentprojects 1 3AutomotiveRetailerb 2 01 3ComputerHardDriveManufacturerb 1 31 3ElectricUtilityb 0 6 averagebofassets 1 3 Whenevaluatinganewelectricalgenerationinvestment whichcostofcapitalshouldbeused CapitalBudgeting ProjectRisk CapitalBudgeting ProjectRisk ProjectIRR Project srisk b 17 1 3 2 0 0 6 R 4 0 6 14 4 10 10 reflectstheopportunitycostofcapitalonaninvestmentinelectricalgeneration giventheuniqueriskoftheproject 10 24 Investmentsinharddrivesorautoretailingshouldhavehigherdiscountrates SML CostofDebt Interestraterequiredonnewdebtissuance i e yieldtomaturityonoutstandingdebt Adjustforthetaxdeductibilityofinterestexpense CostofPreferredStock Preferredstockisaperpetuity soitspriceisequaltothecouponpaiddividedbythecurrentrequiredreturn Rearranging thecostofpreferredstockis RP C PV 13 9TheWeightedAverageCostofCapital TheWeightedAverageCostofCapitalisgivenby Becauseinterestexpenseistax deductible wemultiplythelasttermby 1 TC Example InternationalPaper First weestimatethecostofequityandthecostofdebt Weestimateanequitybetatoestimatethecostofequity WecanoftenestimatethecostofdebtbyobservingtheYTMofthefirm sdebt Second wedeterminetheWACCbyweightingthesetwocostsappropriately Example InternationalPaper Theindustryaveragebetais0 82 theriskfreerateis3 andthemarketriskpremiumis8 4 Thus thecostofequitycapitalis 3 0 82 8 4 9 89 Example InternationalPaper Theyieldonthecompany sdebtis8 andthefirmhasa37 marginaltaxrate Thedebttovalueratiois32 8 34 isI