第十二章风险、资本成本和资本预算

ChapterOutline12.1TheCostofEquityCapital12.2EstimationofBeta12.3DeterminantsofBeta12.4ExtensionsoftheBasicModel12.5EstimatingInternationalPaper’sCostofCapital12.6ReducingtheCostofCapital12.7SummaryandConclusions第一页，共三十五页。What’stheBigIdea?Earlierchaptersoncapitalbudgetingfocusedontheappropriatesizeandtimingofcashflows.Thischapterdiscussestheappropriatediscountratewhencashflowsarerisky.第二页，共三十五页。Investinproject12.1TheCostofEquityCapitalFirmwith

excesscashShareholder’sTerminalValuePaycashdividendShareholderinvestsinfinancialassetBecausestockholderscanreinvestthedividendinriskyfinancialassets,theexpectedreturnonacapital-budgetingprojectshouldbeatleastasgreatastheexpectedreturnonafinancialassetofcomparablerisk.Afirmwithexcesscashcaneitherpayadividendormakeacapitalinvestment第三页，共三十五页。TheCostofEquityFromthefirm’sperspective,theexpectedreturnistheCostofEquityCapital:Toestimateafirm’scostofequitycapital,weneedtoknowthreethings:Therisk-freerate,RFThemarketriskpremium,Thecompanybeta,第四页，共三十五页。ExampleSupposethestockofStansfieldEnterprises,apublisherofPowerPointpresentations,hasabetaof2.5.Thefirmis100-percentequityfinanced.Assumearisk-freerateof5-percentandamarketriskpremiumof10-percent.Whatistheappropriatediscountrateforanexpansionofthisfirm?第五页，共三十五页。Example(continued)

SupposeStansfieldEnterprisesisevaluatingthefollowingnon-mutuallyexclusiveprojects.Eachcosts$100andlastsoneyear.ProjectProjectbProject’sEstimatedCashFlowsNextYearIRRNPVat30%A2.5$15050%$15.38B2.5$13030%$0C2.5$11010%-$15.38第六页，共三十五页。UsingtheSMLtoEstimatetheRisk-AdjustedDiscountRateforProjects

Anall-equityfirmshouldacceptaprojectwhoseIRRexceedsthecostofequitycapitalandrejectprojectswhoseIRRsfallshortofthecostofcapital.ProjectIRRFirm’srisk(beta)5%GoodprojectsBadprojects30%2.5ABC第七页，共三十五页。12.2EstimationofBeta:MeasuringMarketRiskMarketPortfolio-Portfolioofallassetsintheeconomy.Inpracticeabroadstockmarketindex,suchastheS&PComposite,isusedtorepresentthemarket.Beta-Sensitivityofastock’sreturntothereturnonthemarketportfolio.第八页，共三十五页。12.2EstimationofBetaTheoretically,thecalculationofbetaisstraightforward:ProblemsBetasmayvaryovertime.Thesamplesizemaybeinadequate.Betasareinfluencedbychangingfinancialleverageandbusinessrisk.SolutionsProblems1and2(above)canbemoderatedbymoresophisticatedstatisticaltechniques.Problem3canbelessenedbyadjustingforchangesinbusinessandfinancialrisk.Lookataveragebetaestimatesofcomparablefirmsintheindustry.第九页，共三十五页。StabilityofBetaMostanalystsarguethatbetasaregenerallystableforfirmsremaininginthesameindustry.That’snottosaythatafirm’sbetacan’tchange.ChangesinproductlineChangesintechnologyDeregulationChangesinfinancialleverage第十页，共三十五页。UsinganIndustryBetaItisfrequentlyarguedthatonecanbetterestimateafirm’sbetabyinvolvingthewholeindustry.Ifyoubelievethattheoperationsofthefirmaresimilartotheoperationsoftherestoftheindustry,youshouldusetheindustrybeta.Ifyoubelievethattheoperationsofthefirmarefundamentallydifferentfromtheoperationsoftherestoftheindustry,youshouldusethefirm’sbeta.Don’tforgetaboutadjustmentsforfinancialleverage.第十一页，共三十五页。12.3DeterminantsofBetaBusinessRiskCyclicityofRevenuesOperatingLeverageFinancialRiskFinancialLeverage第十二页，共三十五页。CyclicalityofRevenuesHighlycyclicalstockshavehighbetas.Empiricalevidencesuggeststhatretailersandautomotivefirmsfluctuatewiththebusinesscycle.Transportationfirmsandutilitiesarelessdependentuponthebusinesscycle.Notethatcyclicalityisnotthesameasvariability—stockswithhighstandarddeviationsneednothavehighbetas.Moviestudioshaverevenuesthatarevariable,dependinguponwhethertheyproduce“hits”or“flops”,buttheirrevenuesarenotespeciallydependentuponthebusinesscycle.第十三页，共三十五页。OperatingLeverageThedegreeofoperatingleveragemeasureshowsensitiveafirm(orproject)istoitsfixedcosts.Operatingleverageincreasesasfixedcostsriseandvariablecostsfall.Operatingleveragemagnifiestheeffectofcyclicityonbeta.Thedegreeofoperatingleverageisgivenby:第十四页，共三十五页。OperatingLeverageVolume$FixedcostsTotalcostsEBITVolumeOperatingleverageincreasesasfixedcostsriseandvariablecostsfall.FixedcostsTotalcosts第十五页，共三十五页。FinancialLeverageandBetaOperatingleveragereferstothesensitivitytothefirm’sfixedcostsofproduction.Financialleverageisthesensitivityofafirm’sfixedcostsoffinancing.Therelationshipbetweenthebetasofthefirm’sdebt,equity,andassetsisgivenby:Financialleveragealwaysincreasestheequitybetarelativetotheassetbeta.第十六页，共三十五页。FinancialLeverageandBeta:ExampleConsiderGrandSport,Inc.,whichiscurrentlyall-equityandhasabetaof0.90.Thefirmhasdecidedtoleveruptoacapitalstructureof1partdebtto1partequity.Sincethefirmwillremaininthesameindustry,itsassetbetashouldremain0.90.However,assumingazerobetaforitsdebt,itsequitybetawouldbecometwiceaslarge:第十七页，共三十五页。12.4ExtensionsoftheBasicModelTheFirmversustheProjectTheCostofCapitalwithDebt第十八页，共三十五页。TheFirmversustheProjectAnyproject’scostofcapitaldependsontheusetowhichthecapitalisbeingput—notthesource.Therefore,itdependsontheriskoftheprojectandnottheriskofthecompany.第十九页，共三十五页。CapitalBudgeting&ProjectRiskAfirmthatusesonediscountrateforallprojectsmayovertimeincreasetheriskofthefirmwhiledecreasingitsvalue.ProjectIRRFirm’srisk(beta)rfbFIRMIncorrectlyrejectedpositiveNPVprojectsIncorrectlyacceptednegativeNPVprojectsHurdlerateTheSMLcantelluswhy:第二十页，共三十五页。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=0.6averagebofassets=1.3Whenevaluatinganewelectricalgenerationinvestment,whichcostofcapitalshouldbeused?CapitalBudgeting&ProjectRisk第二十一页，共三十五页。CapitalBudgeting&ProjectRiskProjectIRRFirm’srisk(beta)17%1.32.00.6r=4%+0.6×(14%–4%)=10%10%reflectstheopportunitycostofcapitalonaninvestmentinelectricalgeneration,giventheuniqueriskoftheproject.10%24%Investmentsinharddrivesorautoretailingshouldhavehigherdiscountrates.第二十二页，共三十五页。TheCostofCapitalwithDebtTheWeightedAverageCostofCapitalisgivenby:Itisbecauseinterestexpenseistax-deductiblethatwemultiplythelasttermby(1-TC)第二十三页，共三十五页。12.5EstimatingInternationalPaper’sCostofCapitalFirst,weestimatethecostofequityandthecostofdebt.Weestimateanequitybetatoestimatethecostofequity.WecanoftenestimatethecostofdebtbyobservingtheYTMofthefirm’sdebt.Second,wedeterminetheWACCbyweightingthesetwocostsappropriately.第二十四页，共三十五页。12.5EstimatingIP’sCostofCapitalTheindustryaveragebetais0.82;theriskfreerateis8%andthemarketriskpremiumis9.2%.Thusthecostofequitycapitalis第二十五页，共三十五页。12.5EstimatingIP’sCostofCapitalTheyieldonthecompany’sdebtis8%andthefirmisinthe37%marginaltaxrate.Thedebttovalueratiois32%12.18percentisInternational’scostofcapital.Itshouldbeusedtodiscountanyprojectwhereonebelievesthattheproject’sriskisequaltotheriskofthefirmasawhole,andtheprojecthasthesameleverageasthefirmasawhole.第二十六页，共三十五页。12.6ReducingtheCostofCapitalWhatisLiquidity?Liquidity,ExpectedReturnsandtheCostofCapitalLiquidityandAdverseSelectionWhattheCorporationCanDo第二十七页，共三十五页。WhatisLiquidity?Theideathattheexpectedreturnonastockandthefirm’scostofcapitalarepositivelyrelatedtoriskisfundamental.Recentlyanumberofacademicshavearguedthattheexpectedreturnonastockandthefirm’scostofcapitalarenegativelyrelatedtotheliquidityofthefirm’ssharesaswell.Thetradingcostsofholdingafirm’ssharesincludebrokeragefees,thebid-askspreadandmarketimpactcosts.第二十八页，共三十五页。Liquidity,ExpectedReturnsandtheCostofCapitalThecostoftradinganilliquidstockreducesthetotalreturnthataninvestorreceives.Investorsthuswilldemandahighexpectedreturnwheninvestinginstockswithhightradingcosts.Thishighexpectedreturnimpliesahighcostofcapitaltothefirm.第二十九页，共三十五页。LiquidityandtheCostofCapitalCostofCapitalLiquidityAnincreaseinliquidity,i.e.areductionintradingcosts,lowersafirm’scostofcapital.第三十页，共三十五页。LiquidityandAdverseSelectionThereareanumberoffactorsthatdeterminetheliquidityofastock.Oneofthesefactorsisadverseselection.Thisreferstothenotionthattraderswithbetterinformationcantakeadvantageofspecialistsandothertraderswhohavelessinformation.Thegreatertheheterogeneityofinformation,thewiderthebid-askspreads,andthehighertherequiredreturnonequity.第三十一页，共三十五页。WhattheCorporationCanDoThecorporationhasanincentivetolowertradingcostssincethiswouldresultinalowercostofcapital.Astocksplitwouldincreasetheliquidityoftheshares.Astocksplitwouldalsoreducetheadverseselectioncoststherebyloweringbid-askspreads.Thisideaisanewoneandempiricalevidenceisnotyetin.第三十二页，共三十五页。WhattheCorporationCanDoCompaniescanalsofacilitatestockpurchasesthroughtheInternet.Directstockp