公司理财罗斯Ch2ppt课件.ppt

12 0 CHAPTER 12 Risk CostofCapital andCapitalBudgeting 12 1 ChapterOutline 12 1TheCostofEquityCapital12 2EstimationofBeta12 3DeterminantsofBeta12 4ExtensionsoftheBasicModel12 5EstimatingInternationalPaper sCostofCapital12 6ReducingtheCostofCapital12 7SummaryandConclusions 12 2 What stheBigIdea Earlierchaptersoncapitalbudgetingfocusedontheappropriatesizeandtimingofcashflows Thischapterdiscussestheappropriatediscountratewhencashflowsarerisky 12 3 12 1TheCostofEquityCapital Firmwithexcesscash Shareholder sTerminalValue Shareholderinvestsinfinancialasset Becausestockholderscanreinvestthedividendinriskyfinancialassets theexpectedreturnonacapital budgetingprojectshouldbeatleastasgreatastheexpectedreturnonafinancialassetofcomparablerisk Afirmwithexcesscashcaneitherpayadividendormakeacapitalinvestment 12 4 TheCostofEquity Fromthefirm sperspective theexpectedreturnistheCostofEquityCapital Toestimateafirm scostofequitycapital weneedtoknowthreethings Therisk freerate RF Themarketriskpremium Thecompanybeta 12 5 Example SupposethestockofStansfieldEnterprises apublisherofPowerPointpresentations hasabetaof2 5 Thefirmis100 percentequityfinanced Assumearisk freerateof5 percentandamarketriskpremiumof10 percent Whatistheappropriatediscountrateforanexpansionofthisfirm 12 6 Example continued SupposeStansfieldEnterprisesisevaluatingthefollowingnon mutuallyexclusiveprojects Eachcosts 100andlastsoneyear 12 7 UsingtheSMLtoEstimatetheRisk AdjustedDiscountRateforProjects Anall equityfirmshouldacceptaprojectwhoseIRRexceedsthecostofequitycapitalandrejectprojectswhoseIRRsfallshortofthecostofcapital ProjectIRR Firm srisk beta 5 Goodproject Badproject 12 8 12 2EstimationofBeta MeasuringMarketRisk MarketPortfolio Portfolioofallassetsintheeconomy Inpracticeabroadstockmarketindex suchastheS PComposite isusedtorepresentthemarket Beta Sensitivityofastock sreturntothereturnonthemarketportfolio 12 9 12 2EstimationofBeta Theoretically thecalculationofbetaisstraightforward ProblemsBetasmayvaryovertime Thesamplesizemaybeinadequate Betasareinfluencedbychangingfinancialleverageandbusinessrisk SolutionsProblems1and2 above canbemoderatedbymoresophisticatedstatisticaltechniques Problem3canbelessenedbyadjustingforchangesinbusinessandfinancialrisk Lookataveragebetaestimatesofcomparablefirmsintheindustry 12 10 StabilityofBeta Mostanalystsarguethatbetasaregenerallystableforfirmsremaininginthesameindustry That snottosaythatafirm sbetacan tchange ChangesinproductlineChangesintechnologyDeregulationChangesinfinancialleverage 12 11 UsinganIndustryBeta Itisfrequentlyarguedthatonecanbetterestimateafirm sbetabyinvolvingthewholeindustry Ifyoubelievethattheoperationsofthefirmaresimilartotheoperationsoftherestoftheindustry youshouldusetheindustrybeta Ifyoubelievethattheoperationsofthefirmarefundamentallydifferentfromtheoperationsoftherestoftheindustry youshouldusethefirm sbeta Don tforgetaboutadjustmentsforfinancialleverage 12 12 12 3DeterminantsofBeta BusinessRiskCyclicityofRevenuesOperatingLeverageFinancialRiskFinancialLeverage 12 13 CyclicalityofRevenues Highlycyclicalstockshavehighbetas Empiricalevidencesuggeststhatretailersandautomotivefirmsfluctuatewiththebusinesscycle Transportationfirmsandutilitiesarelessdependentuponthebusinesscycle Notethatcyclicalityisnotthesameasvariability stockswithhighstandarddeviationsneednothavehighbetas Moviestudioshaverevenuesthatarevariable dependinguponwhethertheyproduce hits or flops buttheirrevenuesarenotespeciallydependentuponthebusinesscycle 12 14 OperatingLeverage Thedegreeofoperatingleveragemeasureshowsensitiveafirm orproject istoitsfixedcosts Operatingleverageincreasesasfixedcostsriseandvariablecostsfall Operatingleveragemagnifiestheeffectofcyclicityonbeta Thedegreeofoperatingleverageisgivenby 12 15 OperatingLeverage Volume Fixedcosts Totalcosts EBIT Volume Operatingleverageincreasesasfixedcostsriseandvariablecostsfall 12 16 FinancialLeverageandBeta Operatingleveragereferstothesensitivitytothefirm sfixedcostsofproduction Financialleverageisthesensitivityofafirm sfixedcostsoffinancing Therelationshipbetweenthebetasofthefirm sdebt equity andassetsisgivenby Financialleveragealwaysincreasestheequitybetarelativetotheassetbeta 12 17 When Debt 0 12 18 FinancialLeverageandBeta Example ConsiderGrandSport Inc whichiscurrentlyall equityandhasabetaof0 90 Thefirmhasdecidedtoleveruptoacapitalstructureof1partdebtto1partequity Sincethefirmwillremaininthesameindustry itsassetbetashouldremain0 90 However assumingazerobetaforitsdebt itsequitybetawouldbecometwiceaslarge bEquity 2 0 90 1 80 12 19 Multiplechoice SlipperySlopeRoofContractinghasanequitybetaof1 2 capitalstructurewith2 3debt andazerotaxrate Whatistheirassetbeta A 0 40B 0 72C 1 20D 1 80E Noneoftheabove 12 20 9 Answer ARationale A E D E E 1 3 1 2 40 12 21 TheJohnsonGuitarCompanyisconsideringbuyingacompanythathasnofinancialleveragebutanassetbetaof0 70 Themarketriskpremiumis6 andtherisk freerateis2 Iftheyplantouse75 debt whatwilltherequiredrateofreturnbe A 6 2 B 8 C 14 6 D 18 8 E Thereisnotenoughinformationprovided 12 22 10 Answer DRationale E 7 1 75 25 7 4 2 8KE 02 2 8 06 02 168 188 18 8 12 23 12 4ExtensionsoftheBasicModel TheFirmversustheProjectTheCostofCapitalwithDebt 12 24 TheFirmversustheProject Anyproject scostofcapitaldependsontheusetowhichthecapitalisbeingput notthesource Therefore itdependsontheriskoftheprojectandnottheriskofthecompany 12 25 CapitalBudgeting ProjectRisk Afirmthatusesonediscountrateforallprojectsmayovertimeincreasetheriskofthefirmwhiledecreasingitsvalue ProjectIRR Firm srisk beta Hurdlerate TheSMLcantelluswhy 12 26 SupposetheConglomerateCompanyhasacostofcapital basedontheCAPM of17 Therisk freerateis4 themarketriskpremiumis10 andthefirm sbetais1 3 17 4 1 3 14 4 Thisisabreakdownofthecompany sinvestmentprojects 1 3Automotiveretailerb 2 01 3ComputerHardDriveMfr b 1 31 3ElectricUtilityb 0 6 averagebofassets 1 3 Whenevaluatinganewelectricalgenerationinvestment whichcostofcapitalshouldbeused CapitalBudgeting ProjectRisk 12 27 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 12 28 TheCostofCapitalwithDebt TheWeightedAverageCostofCapitalisgivenby Itisbecauseinterestexpenseistax deductiblethatwemultiplythelasttermby 1 TC 12 29 Readtheexampleonp332 B 40M S 60M rB 15 1 41 T 34 RM RF 9 5 RF 11 rWACC rs RF RM RF 11 1 41 9 5 24 4 60 60 40 24 4 40 60 40 15 1 34 18 6 12 30 Readtheexampleonp333 B S 0 6 0 6 1 rB 15 5 rs 20 Tc 34 S S B 1 1 6 0 625 B S B 0 6 1 6 0 375 0 625 20 0 375 15 5 1 34 16 25 12 31 Problem12 12onp341 12 32 12 12ApplytheCAPMtoestimateAdobeOnline scostofequity RS Thefollowingequationexpressesthefirm srequiredreturn RS intermsofthefirm sbeta S therisk freerate RF andthemarketreturn M RS RF M RF 0 07 1 29 0 13 0 07 0 1474AdobeOnline scostofequityis14 74 12 33 rWACC S S B rS B S B rB 1 TC 0 5 0 1474 0 5 0 07 1 0 35 0 09645Theweightedaveragecostofcapitalis9 645 12 34 12 5EstimatingInternationalPaper sCostofCapital p333 First weestimatethecostofequityandthecostofdebt Weestimateanequitybetatoestimatethecostofequity WecanoftenestimatethecostofdebtbyobservingtheYTMofthefirm sdebt Second wedeterminetheWACCbyweightingthesetwocostsappropriately 12 35 12 5EstimatingIP sCostofCapital Theindustryaveragebetais0 82 theriskfreerateis3 andthemarketriskpremiumis8 4 Thusthecostofequitycapitalis 3 0 82 8 4 9 89 12 36 12 5EstimatingIP sCostofCapital Theyieldonthecompany sdebtis8 andthefirmisinthe37 marginaltaxrate Thedebttovalueratiois32 8 34percentisInternational scostofcapital Itshouldbeusedtodiscountanyprojectwhereonebelievesthattheproject sriskisequaltotheriskofthefirmasawhole andtheprojecthasthesameleverageasthefirmasawhole 0 68 9 89 0 32 8 1 0 37 8 34 12 37 12 6ReducingtheCostofCapital WhatisLiquidity Liquidity ExpectedReturnsandtheCostofCapitalLiquidityandAdverseSelectionWhattheCorporationCanDo 12 38 WhatisLiquidity Theideathattheexpectedreturnonastockandthefirm scostofcapitalarepositivelyrelatedtoriskisfundamental Recentlyanumberofacademicshavearguedthattheexpectedreturnonastockandthefirm scostofcapitalarenegativelyrelatedtotheliquidityofthefirm ssharesaswell Thosestocksthatareexpensivetotradeareconsideredlessliquidthanthosethattradecheaply Thetradingcostsofholdingafirm ssharesincludebrokeragefees thebid askspreadandmarketimpactcosts 12 39 Liquidity ExpectedReturnsandtheCostofCapital Thecostoftradinganilliquidstockreducesthetotalreturnthataninvestorreceives Investorsthuswilldemandahighexpectedreturnwheninvestinginstockswithhightradingcosts Thishighexpectedreturnimpliesahighcostofcapitaltothefirm 12 40 LiquidityandtheCostofCapital CostofCapital Liquidity Anincreaseinliquidity i e areductionintradingcosts lowersafirm scostofcapital 12 41 LiquidityandAdverseSelection Thereareanumberoffactorsthatdeterminetheliquidityofastock Oneofthesefactorsisadverseselection Thisreferstothenotionthattraderswithbetterinformationcantakeadvantageofspecialistsandothertraderswhohavelessinformation Thegreatertheheterogeneityofinformation thewiderthebid askspreads andthehighertherequiredreturnonequity 12 42 WhattheCorporationCanDo Thecorporationhasanincentivetolowertradingcostssincethiswouldresultinalowercostofcapital Astocksplitwouldincreasetheliquidityoftheshares Astocksplitwouldalsoreducetheadverseselectioncoststherebyloweringbid askspreads Thisideaisanewoneandempiricalevidenceisnotyetin 12 43 WhattheCorporationCanDo CompaniescanalsofacilitatestockpurchasesthroughtheInternet Directstockpurchaseplansanddividendreinvestmentplanshandleson lineallowsmallinvestorstheopportunitytobuysecuritiescheaply Thecompaniescanalsodisclosemoreinformation Especiallytosecurityanalysts tonarrowthegapbetweeninformedanduninformedtraders Thisshouldreducespreads 12 44 Economicvalueaddedandthemeasurementoffinancialperformance EVAcansimplybeviewedasearningsaftercapitalcostsEVA ROA rwacc Totalcapital EBIT 1 Tc rwacc TotalcapitalReadtheexampleonp345 12 45 12 7SummaryandConclusions Theexpectedreturnonanycapitalbudgetingprojectshouldbeatleastasgreatastheexpectedreturnonafinancialassetofcomparablerisk Otherwisetheshareholderswouldpreferthefirmtopayadividend Theexpectedreturnonanyassetisdependentuponb Aproject srequiredreturndependsontheproject sb Aproject sbcanbeestimatedbyconsideringcomparableindustriesorthecyclicalityofprojectrevenuesandtheproject soperatingleverage Ifthefirmusesdebt thediscountratetouseistherWACC InordertocalculaterWACC thecostofequityandthecostofdebtapplicabletoaprojectmustbeestim