财务管理学及财务知识分析(英文版)

CHAPTER10

TheCostofCapitalCostofcapitalcomponentsAccountingforflotationcostsWACCAdjustingcostofcapitalforriskEstimatingprojectrisk第一页，共四十一页。Whattypesofcapitaldofirmsuse?DebtPreferredstockCommonequity: Retainedearnings Newcommonstock第二页，共四十一页。StockholdersfocusonA-TCFs.Therefore,weshouldfocusonA-Tcapitalcosts,i.e.,useA-TcostsinWACC.Onlykdneedsadjustment.Shouldwefocuson

before-tax

or

after-tax

capitalcosts?第三页，共四十一页。Thecostofcapitalisusedprimarilytomakedecisionsthatinvolveraisingnewcapital.So,focusontoday’smarginalcosts(forWACC).Shouldwefocusonhistorical(embedded)costsornew(marginal)costs?第四页，共四十一页。A15-year,12%semiannualbondsellsfor$1,153.72.What’skd?6060+1,0006001230i=? 30 -1153.72601000

5.0%x2=kd=10% NI/YRPVFVPMT-1,153.72...INPUTSOUTPUT第五页，共四十一页。ComponentCostofDebtInterestistaxdeductible,sokdAT=kdBT(1–T) =10%(1–0.40)=6%.Usenominalrate.Flotationcostssmall.Ignore.第六页，共四十一页。What’sthecostofpreferredstock?

Pp=$111.10;10%Q;Par=$100.Usethisformula:第七页，共四十一页。PictureofPreferredStock2.502.50012kp=?-111.1¥...2.50$111.10==.kPer==2.25%;kp(Nom)=2.25%(4)=9%.DQkPer$2.50kPer$2.50$111.10第八页，共四十一页。Note:Preferreddividendsarenottaxdeductible,sonotaxadjustment.Justkp.Nominalkpisused.Ourcalculationignoresflotationcosts.第九页，共四十一页。Ispreferredstockmoreorlessriskytoinvestorsthandebt?Morerisky;companynotrequiredtopaypreferreddividend.However,firmstrytopaypreferreddividend.Otherwise,(1)cannotpaycommondividend,(2)difficulttoraiseadditionalfunds,(3)preferredstockholdersmaygaincontroloffirm.第十页，共四十一页。Whyisyieldonpreferredlowerthankd?Corporationsownmostpreferredstock,because70%ofpreferreddividendsarenontaxabletocorporations.Therefore,preferredoftenhasalowerB-TyieldthantheB-Tyieldondebt.TheA-Tyieldtoaninvestor,andtheA-Tcosttotheissuer,arehigheronpreferredthanondebt.Consistentwithhigherriskofpreferred.第十一页，共四十一页。Example:kp=9%kd=10%T=40%kp,AT=kp–kp(1–0.7)(T)=9%–9%(0.3)(0.4)=

7.92%.kd,AT=10%–10%(0.4)=6.00%.A-TRiskPremiumonPreferred=1.92%.第十二页，共四十一页。Whyisthereacostforretainedearnings?Earningscanbereinvestedorpaidoutasdividends.Investorscouldbuyothersecurities,earnareturn.Thus,thereisanopportunitycostifearningsareretained.第十三页，共四十一页。Opportunitycost:Thereturnstockholderscouldearnonalternativeinvestmentsofequalrisk.Theycouldbuysimilarstocksandearnks,orcompanycouldrepurchaseitsownstockandearnks.So,ksisthecostofretainedearnings.第十四页，共四十一页。Threewaystodeterminecostofcommonequity,ks:1. CAPM:ks=kRF+(kM–kRF)b.2. DCF:ks=D1/P0+g.3. Own-Bond-Yield-Plus-Risk Premium:ks=kd+RP.第十五页，共四十一页。What’sthecostofcommonequitybasedontheCAPM?

kRF=7%,RPM=6%,b=1.2.ks=kRF+(kM

–kRF)b.=7.0%+(6.0%)1.2=14.2%.第十六页，共四十一页。What’stheDCFcostofcommon

equity,ks?Given:D0=$4.19;

P0=$50;g=5%.D1P0D0(1+g)P0$4.19(1.05)$50ks =

+g=+g =+0.05 =0.088+0.05 =13.8%.第十七页，共四十一页。Supposethecompanyhasbeenearning15%onequity(ROE=15%)andretaining35%(dividendpayout=65%),andthissituationisexpectedtocontinue.

What’stheexpectedfutureg?第十八页，共四十一页。Retentiongrowthrate:

g=(1–Payout)(ROE) =0.35(15%)

=5.25%.

Here(1–Payout)=Fractionretained.

Closetog=5%givenearlier.Thinkofbankaccountpaying10%withpayout=100%,payout=0%,andpayout=50%.What’sg?第十九页，共四十一页。CouldDCFmethodologybeappliedifgisnotconstant?YES,nonconstantgstocksareexpectedtohaveconstantgatsomepoint,generallyin5to10years.Butcalculationsgetcomplicated.第二十页，共四十一页。Findksusingtheown-bond-yield-plus-risk-premiummethod.

(kd=10%,RP=4%.)ThisRP¹CAPMRP.Producesballparkestimateofks.Usefulcheck.ks=kd+RP=10.0%+4.0%=14.0%第二十一页，共四十一页。What’sareasonablefinalestimateofks?Method

EstimateCAPM 14.2%DCF 13.8%kd+RP 14.0% Average 14.0%第二十二页，共四十一页。1. Whenacompanyissuesnewcommonstocktheyalsohavetopayflotationcoststotheunderwriter.2. Issuingnewcommonstockmaysendanegativesignaltothecapitalmarkets,whichmaydepressstockprice.Whyisthecostofretainedearningscheaperthanthecostofissuingnewcommonstock?第二十三页，共四十一页。Twoapproachesthatcanbeusedtoaccountforflotationcosts:Includetheflotationcostsaspartoftheproject’sup-frontcost.Thisreducestheproject’sestimatedreturn.Adjustthecostofcapitaltoincludeflotationcosts.ThisismostcommonlydonebyincorporatingflotationcostsintheDCFmodel.第二十四页，共四十一页。Newcommon,F=15%:第二十五页，共四十一页。Commentsaboutflotationcosts:Flotationcostsdependontheriskofthefirmandthetypeofcapitalbeingraised.Theflotationcostsarehighestforcommonequity.However,sincemostfirmsissueequityinfrequently,theper-projectcostisfairlysmall.WewillfrequentlyignoreflotationcostswhencalculatingtheWACC.第二十六页，共四十一页。What’sthefirm’sWACC(ignoringflotationcosts)?WACC=wdkd(1–T)+wpkp+wcks=0.3(10%)(0.6)+0.1(9%)+0.6(14%)=1.8%+0.9%+8.4%=11.1%.

第二十七页，共四十一页。Whatfactorsinfluenceacompany’scompositeWACC?Marketconditions.Thefirm’scapitalstructureanddividendpolicy.Thefirm’sinvestmentpolicy.FirmswithriskierprojectsgenerallyhaveahigherWACC.第二十八页，共四十一页。WACCEstimatesforSomeLarge

U.S.Corporations,Nov.1999Company

WACCIntel 12.9%GeneralElectric 11.9Motorola 11.3Coca-Cola 11.2WaltDisney 10.0AT&T 9.8Wal-Mart 9.8Exxon 8.8H.J.Heinz 8.5BellSouth 8.2第二十九页，共四十一页。ShouldthecompanyusethecompositeWACCasthehurdlerateforeachofitsprojects?NO!ThecompositeWACCreflectstheriskofanaverageprojectundertakenbythefirm.Therefore,theWACConlyrepresentsthe“hurdlerate”foratypicalprojectwithaveragerisk.Differentprojectshavedifferentrisks.Theproject’sWACCshouldbeadjustedtoreflecttheproject’srisk.第三十页，共四十一页。RiskandtheCostofCapital第三十一页，共四十一页。DivisionalCostofCapital第三十二页，共四十一页。Whatarethethreetypesofprojectrisk?Stand-aloneriskCorporateriskMarketrisk第三十三页，共四十一页。Howiseachtypeofriskused?Marketriskistheoreticallybestinmostsituations.However,creditors,customers,suppliers,andemployeesaremoreaffectedbycorporaterisk.Therefore,corporateriskisalsorelevant.第三十四页，共四十一页。Subjectiveadjustmentstothefirm’scompositeWACC.Attempttoestimatewhatthecostofcapitalwouldbeiftheproject/divisionwereastand-alonefirm.Thisrequiresestimatingtheproject’sbeta.Whatproceduresareusedtodeterminetherisk-adjustedcostofcapitalforaparticularprojectordivision?第三十五页，共四十一页。MethodsforEstimatingaProject’sBeta1. Pureplay.Findseveralpubliclytradedcompaniesexclusivelyinproject’sbusiness. Useaverageoftheirbetasasproxyforproject’sbeta. Hardtofindsuchcompanies.第三十六页，共四十一页。2. Accountingbeta.

Runregressionbetweenproject’sROAandS&PindexROA. Accountingbetasarecorrelated(0.5–0.6)withmarketbetas. Butnormallycan’tgetdataonnewprojects’ROAsbeforethecapitalbudgetingdecisionhasbeenmade.第三十七页，共四十一页。Findthedivision’s

marketrisk

andcostofcapitalbasedonthe

CAPM,gi