公司理财第十二章 wacc 及公司评估

,Chapter 12,Fundamentals of Corporate FinanceFifth Edition,Slides byMatthew Will,McGraw-Hill/Irwin,Copyright 2007 by The McGraw-Hill Companies, Inc. All rights reserved,The Weighted-Average Cost of Capital and Company Valuation,Topics Covered,Geothermals Cost of CapitalWeighted Average Cost of Capital (WACC)Measuring Capital StructureCalculating Required Rates of ReturnCalculating WACCInterpreting WACCValuing Entire Businesses,Cost of Capital,Cost of Capital - The return the firms investors could expect to earn if they invested in securities with comparable degrees of risk.Capital Structure - The firms mix of long term debt financing and equity financing. （which is only part of its financial structure.）,Cost of Capital,The cost of capital for an all-equity financed firm owning all the stock is the same as owning all the assets and the expected return on the stock is the expected return on the assets.Note the following identities: Value of business = value of stock Risk of business = risk of stock Rate of return on business = rate of return on stock Investors required return = investors required return from business from stock,Cost of Capital,When only equity is financing a business, the CAPM may be used to calculate the company cost of capital.When debt securities finance a portion of assets, the cost of capital is the expected return on the portfolio of all the firms securities.The cost of capital is the expected rate of return that investors require on the business assets, based on the market value of the securities of the firm.,Cost of Capital,Example - Geothermal Inc. has the following structure. Given that geothermal pays 8% for debt and 14% for equity, what is the Company Cost of Capital?,Cost of Capital,Example - Geothermal Inc. has the following structure. Given that geothermal pays 8% for debt and 14% for equity, what is the Company Cost of Capital?,WACC,Weighted Average Cost of Capital (WACC) - The expected rate of return on a portfolio of all the firms securities.Company cost of capital = Weighted average of debt and equity returns.,WACC,WACC,Taxes are an important consideration in the company cost of capital because interest payments are deducted from income before tax is calculated.,At a 35% tax rate, the after-tax cost of $1 of interest paid is $1 (1-.35) or $.65. This interest tax shield of $1 x 35% reduces the pre-tax cost of debt by (1- tax rate).,Cost of Capital,Example - Geothermal Inc. has the following structure. Given that geothermal pays 8% for debt and 14% for equity, what is the Company Cost of Capital?,Interest is tax deductible. Given a 35% tax rate, debt only costs us 5.2% (i.e. 8 % x .65).,WACC,Weighted -average cost of capital=,WACC,Three Steps to Calculating Cost of Capital1. Calculate the value of each security as a proportion of the firms market value.2. Determine the required rate of return on each security.3. Calculate a weighted average of these required returns.,WACC,Example - Executive Fruit has issued debt, preferred stock and common stock. The market value of these securities are $4mil, $2mil, and $6mil, respectively. The required returns are 6%, 12%, and 18%, respectively.Q: Determine the WACC for Executive Fruit, Inc.,WACC,Example - continuedStep 1 Firm Value = 4 + 2 + 6 = $12 milStep 2Required returns are givenStep 3,WACC,Checking Our Logic If Geothermal earns the cost of capital on assets, 11.4% (NPV=0), the debt security holders will earn their required rate of return, 8%, and shareholders will earn their required rate of return of 14%.Projects with actual NPVs greater than zero will earn shareholders a return greater than the required rate of return on equity.,Measuring Capital Structure,Book Values often do not represent the true market value of a firms securities.In estimating WACC, do not use the Book Value of securities，but use the Market Value of the securities.,Measuring Capital Structure,Market Value of Bonds - PV of all coupons and par value discounted at the current interest rate.,Market Value of Equity - Market price per share multiplied by the number of outstanding shares.,Measuring Capital Structure,Measuring Capital Structure,If the long term bonds pay an 8% coupon and mature in 12 years, what is their market value assuming a 9% YTM?,Measuring Capital Structure,Required Rates of Return,Bonds,Common Stock,Required Rates of Return,Dividend Discount Model Cost of EquityPerpetuity Growth Model =solve for re,Required Rates of Return,Expected Return on Preferred StockPrice of Preferred Stock =solve for preferred,Interpreting the WACC,When You Can and Cant Use WACCThe WACC is the rate of return that the business must expect to earn on its average-risk investments in order to provide the opportunity rate of return to all its investors.Investment projects under consideration with higher or lower risk than average business risk should be discounted with rates above or below the WACC.,Interpreting the WACC,Some Common Mistakes Because debt is tax deductible and its after-tax cost is far less than the cost of equity, one may reason that funding the project with increased proportions of debt will lower the WACC.,Interpreting the WACC,Issues in Using WACC while changing capital structure Debt has two costs: 1)return on debt (explicit cost); 2)increased cost of equity demanded due to the increase in risk（implicit cost)Betas may change with capital structureCorporate taxes complicate the analysis and may change our decision,Valuing Entire Business,FCF and PVFree Cash Flows (FCF) should be the theoretical basis for all PV calculations.The market price does not always