公司理财chap016ppt课件.ppt

CapitalStructureLimitstotheUseofDebt KeyConceptsandSkills DefinethecostsassociatedwithbankruptcyUnderstandthetheoriesthataddressthelevelofdebtafirmcarriesTradeoffSignalingAgencyCostPeckingOrderKnowrealworldfactorsthataffectthedebttoequityratio ChapterOutline 16 1CostsofFinancialDistress16 2DescriptionofFinancialDistressCosts16 3CanCostsofDebtBeReduced 16 4IntegrationofTaxEffectsandFinancialDistressCosts16 5Signaling16 6Shirking Perquisites andBadInvestments ANoteonAgencyCostofEquity16 7ThePecking OrderTheory16 8GrowthandtheDebt EquityRatio16 9PersonalTaxes16 10HowFirmsEstablishCapitalStructure 16 1CostsofFinancialDistress BankruptcyriskversusbankruptcycostThepossibilityofbankruptcyhasanegativeeffectonthevalueofthefirm However itisnottheriskofbankruptcyitselfthatlowersvalue Rather itisthecostsassociatedwithbankruptcy Itisthestockholderswhobearthesecosts 16 2DescriptionofFinancialDistressCosts DirectCostsLegalandadministrativecostsIndirectCostsImpairedabilitytoconductbusiness e g lostsales AgencyCostsSelfishStrategy1 IncentivetotakelargerisksSelfishStrategy2 IncentivetowardunderinvestmentSelfishStrategy3 Milkingtheproperty Example CompanyinDistress AssetsBVMVLiabilitiesBVMVCash 200 200LTbonds 300FixedAsset 400 0Equity 300Total 600 200Total 600 200Whathappensifthefirmisliquidatedtoday Thebondholdersget 200 theshareholdersgetnothing 200 0 SelfishStrategy1 TakeRisks TheGambleProbabilityPayoffWinBig10 1 000LoseBig90 0Costofinvestmentis 200 allthefirm scash Requiredreturnis50 ExpectedCFfromtheGamble 1000 0 10 0 100 NPV 133 SelfishStrategy1 TakeRisks ExpectedCFfromtheGambleToBondholders 300 0 10 0 30ToStockholders 1000 300 0 10 0 70PVofBondsWithouttheGamble 200PVofStocksWithouttheGamble 0 SelfishStrategy2 Underinvestment Consideragovernment sponsoredprojectthatguarantees 350inoneperiod Costofinvestmentis 300 thefirmonlyhas 200now sothestockholderswillhavetosupplyanadditional 100tofinancetheproject Requiredreturnis10 Shouldweacceptorreject NPV 18 18 SelfishStrategy2 Underinvestment ExpectedCFfromthegovernmentsponsoredproject ToBondholder 300ToStockholder 350 300 50PVofBondsWithouttheProject 200PVofStocksWithouttheProject 0 100 SelfishStrategy3 MilkingtheProperty LiquidatingdividendsSupposeourfirmpaidouta 200dividendtotheshareholders Thisleavesthefirminsolvent withnothingforthebondholders butplentyfortheformershareholders Suchtacticsoftenviolatebondindentures Increaseperquisitestoshareholdersand ormanagement 16 3CanCostsofDebtBeReduced ProtectiveCovenantsDebtConsolidation Ifweminimizethenumberofparties contractingcostsfall 16 4TaxEffectsandFinancialDistress Thereisatrade offbetweenthetaxadvantageofdebtandthecostsoffinancialdistress Itisdifficulttoexpressthiswithapreciseandrigorousformula TaxEffectsandFinancialDistress Debt B Valueoffirm V 0 Presentvalueoftaxshieldondebt Presentvalueoffinancialdistresscosts ValueoffirmunderMMwithcorporatetaxesanddebt VL VU TCB V Actualvalueoffirm VU Valueoffirmwithnodebt B Maximumfirmvalue Optimalamountofdebt ThePieModelRevisited Taxesandbankruptcycostscanbeviewedasjustanotherclaimonthecashflowsofthefirm LetGandLstandforpaymentstothegovernmentandbankruptcylawyers respectively VT S B G LTheessenceoftheMcapitalstructurejustslicesthepie S G B L 16 5Signaling Thefirm scapitalstructureisoptimizedwherethemarginalsubsidytodebtequalsthemarginalcost Investorsviewdebtasasignaloffirmvalue Firmswithlowanticipatedprofitswilltakeonalowlevelofdebt Firmswithhighanticipatedprofitswilltakeonahighlevelofdebt Amanagerthattakesonmoredebtthanisoptimalinordertofoolinvestorswillpaythecostinthelongrun 16 6AgencyCostofEquity Anindividualwillworkharderforafirmifheisoneoftheownersthanifheisoneofthe hiredhelp Whilemanagersmayhavemotivetopartakeinperquisites theyalsoneedopportunity Freecashflowprovidesthisopportunity Thefreecashflowhypothesissaysthatanincreaseindividendsshouldbenefitthestockholdersbyreducingtheabilityofmanagerstopursuewastefulactivities Thefreecashflowhypothesisalsoarguesthatanincreaseindebtwillreducetheabilityofmanagerstopursuewastefulactivitiesmoreeffectivelythandividendincreases 16 7ThePecking OrderTheory Theorystatingthatfirmsprefertoissuedebtratherthanequityifinternalfinancingisinsufficient Rule1Useinternalfinancingfirst Rule2Issuedebtnext newequitylast Thepecking ordertheoryisatoddswiththetradeofftheory ThereisnotargetD Eratio Profitablefirmsuselessdebt Companieslikefinancialslack 16 8GrowthandtheDebt EquityRatio Growthimpliessignificantequityfinancing eveninaworldwithlowbankruptcycosts Thus high growthfirmswillhavelowerdebtratiosthanlow growthfirms Growthisanessentialfeatureoftherealworld Asaresult 100 debtfinancingissub optimal 16 9PersonalTaxes Individuals inadditiontothecorporation mustpaytaxes Thus personaltaxesmustbeconsideredindeterminingtheoptimalcapitalstructure PersonalTaxes Dividendsfacedoubletaxation firmandshareholder whichsuggestsastockholderreceivesthenetamount 1 TC x 1 TS Interestpaymentsareonlytaxedattheindividuallevelsincetheyaretaxdeductiblebythecorporation sothebondholderreceives 1 TB PersonalTaxes IfTS TBthenthefirmshouldbefinancedprimarilybydebt avoidingdoubletax Thefirmisindifferentbetweendebtandequitywhen 1 TC x 1 TS 1 TB 16 10HowFirmsEstablishCapitalStructure MostcorporationshavelowDebt Assetratios Changesinfinancialleverageaffectfirmvalue Stockpriceincreaseswithleverageandvice versa thisisconsistentwithM Mwithtaxes Anotherinterpretationisthatfirmssignalgoodnewswhentheyleverup Therearedifferencesincapitalstructureacrossindustries ThereisevidencethatfirmsbehaveasiftheyhadatargetDebt Equityratio FactorsinTargetD ERatio TaxesSinceintere