公司理财-罗斯Ch12课件

CHAPTER12Risk,CostofCapital,andCapitalBudgeting公司理财-罗斯Ch121CHAPTER12Risk,CostofCapitalChapterOutline12.1TheCostofEquityCapital12.2EstimationofBeta12.3DeterminantsofBeta12.4ExtensionsoftheBasicModel12.5EstimatingInternationalPaper’sCostof Capital12.6ReducingtheCostofCapital12.7SummaryandConclusions公司理财-罗斯Ch122ChapterOutline12.1TheCostoWhat’stheBigIdea?Earlierchaptersoncapitalbudgetingfocusedontheappropriatesizeandtimingofcashflows.Thischapterdiscussestheappropriatediscountratewhencashflowsarerisky.公司理财-罗斯Ch123What’stheBigIdea?EarlierchInvestinproject12.1TheCostofEquityCapitalFirmwith

excesscashShareholder’sTerminalValuePaycashdividendShareholderinvestsinfinancialassetBecausestockholderscanreinvestthedividendinriskyfinancialassets,theexpectedreturnonacapital-budgetingprojectshouldbeatleastasgreatastheexpectedreturnonafinancialassetofcomparablerisk.Afirmwithexcesscashcaneitherpayadividendormakeacapitalinvestment公司理财-罗斯Ch124Investinproject12.1TheCostTheCostofEquityFromthefirm’sperspective,theexpectedreturnistheCostofEquityCapital:Toestimateafirm’scostofequitycapital,weneedtoknowthreethings:)(FMiFiRRβRR-+=Therisk-freerate,RFFMRR-Themarketriskpremium,2,)(),(MMiMMiiσσRVarRRCovβ==Thecompanybeta,公司理财-罗斯Ch125TheCostofEquityFromthefirExampleSupposethestockofStansfieldEnterprises,apublisherofPowerPointpresentations,hasabetaof2.5.Thefirmis100-percentequityfinanced.Assumearisk-freerateof5-percentandamarketriskpremiumof10-percent.Whatistheappropriatediscountrateforanexpansionofthisfirm?%105.2%5´+=R%30=R公司理财-罗斯Ch126ExampleSupposethestockofStExample(continued)

SupposeStansfieldEnterprisesisevaluatingthefollowingnon-mutuallyexclusiveprojects.Eachcosts$100andlastsoneyear.ProjectProjectbProject’sEstimatedCashFlowsNextYearIRRNPVat30%A2.5$15050%$15.38B2.5$13030%$0C2.5$11010%-$15.38公司理财-罗斯Ch127Example(continued)SupposeUsingtheSMLtoEstimatetheRisk-AdjustedDiscountRateforProjectsAnall-equityfirmshouldacceptaprojectwhoseIRRexceedsthecostofequitycapitalandrejectprojectswhoseIRRsfallshortofthecostofcapital.ProjectIRRFirm’srisk(beta)5%GoodprojectBadproject30%2.5ABC公司理财-罗斯Ch128UsingtheSMLtoEstimatethe12.2EstimationofBeta:MeasuringMarketRiskMarketPortfolio-Portfolioofallassetsintheeconomy.Inpracticeabroadstockmarketindex,suchastheS&PComposite,isusedtorepresentthemarket.Beta-Sensitivityofastock’sreturntothereturnonthemarketportfolio.公司理财-罗斯Ch12912.2EstimationofBeta:Measu12.2EstimationofBetaTheoretically,thecalculationofbetaisstraightforward:ProblemsBetasmayvaryovertime.Thesamplesizemaybeinadequate.Betasareinfluencedbychangingfinancialleverageandbusinessrisk.SolutionsProblems1and2(above)canbemoderatedbymoresophisticatedstatisticaltechniques.Problem3canbelessenedbyadjustingforchangesinbusinessandfinancialrisk.Lookataveragebetaestimatesofcomparablefirmsintheindustry.公司理财-罗斯Ch121012.2EstimationofBetaTheoretStabilityofBetaMostanalystsarguethatbetasaregenerallystableforfirmsremaininginthesameindustry.That’snottosaythatafirm’sbetacan’tchange.ChangesinproductlineChangesintechnologyDeregulationChangesinfinancialleverage公司理财-罗斯Ch1211StabilityofBetaMostanalystsUsinganIndustryBetaItisfrequentlyarguedthatonecanbetterestimateafirm’sbetabyinvolvingthewholeindustry.Ifyoubelievethattheoperationsofthefirmaresimilartotheoperationsoftherestoftheindustry,youshouldusetheindustrybeta.Ifyoubelievethattheoperationsofthefirmarefundamentallydifferentfromtheoperationsoftherestoftheindustry,youshouldusethefirm’sbeta.Don’tforgetaboutadjustmentsforfinancialleverage.公司理财-罗斯Ch1212UsinganIndustryBetaItisfr12.3DeterminantsofBetaBusinessRiskCyclicityofRevenuesOperatingLeverageFinancialRiskFinancialLeverage公司理财-罗斯Ch121312.3DeterminantsofBetaBusinCyclicalityofRevenuesHighlycyclicalstockshavehighbetas.Empiricalevidencesuggeststhatretailersandautomotivefirmsfluctuatewiththebusinesscycle.Transportationfirmsandutilitiesarelessdependentuponthebusinesscycle.Notethatcyclicalityisnotthesameasvariability—stockswithhighstandarddeviationsneednothavehighbetas.Moviestudioshaverevenuesthatarevariable,dependinguponwhethertheyproduce“hits”or“flops”,buttheirrevenuesarenotespeciallydependentuponthebusinesscycle.公司理财-罗斯Ch1214CyclicalityofRevenuesHighlyOperatingLeverageThedegreeofoperatingleveragemeasureshowsensitiveafirm(orproject)istoitsfixedcosts.Operatingleverageincreasesasfixedcostsriseandvariablecostsfall.Operatingleveragemagnifiestheeffectofcyclicityonbeta.Thedegreeofoperatingleverageisgivenby:DOL=EBITDSalesSalesDEBIT×公司理财-罗斯Ch1215OperatingLeverageThedegreeoOperatingLeverageVolume$FixedcostsTotalcosts

EBIT

VolumeOperatingleverageincreasesasfixedcostsriseandvariablecostsfall.FixedcostsTotalcosts公司理财-罗斯Ch1216OperatingLeverageVolume$FixedFinancialLeverageandBetaOperatingleveragereferstothesensitivitytothefirm’sfixedcostsofproduction.Financialleverageisthesensitivityofafirm’sfixedcostsoffinancing.Therelationshipbetweenthebetasofthefirm’sdebt,equity,andassetsisgivenby:Financialleveragealwaysincreasestheequitybetarelativetotheassetbeta.bAsset=Debt+EquityDebt×bDebt+

Debt+EquityEquity×bEquity公司理财-罗斯Ch1217FinancialLeverageandBetaOpeWhenβDebt→0,公司理财-罗斯Ch1218WhenβDebt→0,公司理财-罗斯Ch1218FinancialLeverageandBeta:ExampleConsiderGrandSport,Inc.,whichiscurrentlyall-equityandhasabetaof0.90.Thefirmhasdecidedtoleveruptoacapitalstructureof1partdebtto1partequity.Sincethefirmwillremaininthesameindustry,itsassetbetashouldremain0.90.However,assumingazerobetaforitsdebt,itsequitybetawouldbecometwiceaslarge:bAsset=0.90=1+11×bEquitybEquity=

2×0.90=1.80公司理财-罗斯Ch1219FinancialLeverageandBeta:EMultiplechoiceSlipperySlopeRoofContractinghasanequitybetaof1.2,capitalstructurewith2/3debt,andazerotaxrate.Whatistheirassetbeta? A) 0.40 B) 0.72 C) 1.20 D) 1.80 E) Noneoftheabove公司理财-罗斯Ch1220MultiplechoiceSlipperySlope9.Answer:A Rationale:

A=(E/(D+E))

E=(1/3)(1.2)=.40公司理财-罗斯Ch12219.Answer:A公司理财-罗斯Ch1221TheJohnsonGuitarCompanyisconsideringbuyingacompanythathasnofinancialleveragebutanassetbetaof0.70.Themarketriskpremiumis6%andtherisk-freerateis2%.Iftheyplantouse75%debt,whatwilltherequiredrateofreturnbe? A) 6.2% B) 8% C) 14.6% D) 18.8% E) Thereisnotenoughinformationprovided.公司理财-罗斯Ch1222TheJohnsonGuitarCompanyis10.Answer:D Rationale:

E=.7[1+.75/.25)]=.7(4)=2.8KE=.02+2.8(.06)=.02+.168=.188=18.8%公司理财-罗斯Ch122310.Answer:D 公司理财-罗斯Ch12212.4ExtensionsoftheBasicModelTheFirmversustheProjectTheCostofCapitalwithDebt公司理财-罗斯Ch122412.4ExtensionsoftheBasicMTheFirmversustheProjectAnyproject’scostofcapitaldependsontheusetowhichthecapitalisbeingput—notthesource.Therefore,itdependsontheriskoftheprojectandnottheriskofthecompany.公司理财-罗斯Ch1225TheFirmversustheProjectAnyCapitalBudgeting&ProjectRiskAfirmthatusesonediscountrateforallprojectsmayovertimeincreasetheriskofthefirmwhiledecreasingitsvalue.ProjectIRRFirm’srisk(beta)rfbFIRMIncorrectlyrejectedpositiveNPVprojectsIncorrectlyacceptednegativeNPVprojectsHurdlerateTheSMLcantelluswhy:公司理财-罗斯Ch1226CapitalBudgeting&ProjectRiSupposetheConglomerateCompanyhasacostofcapital,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公司理财-罗斯Ch1227SupposetheConglomerateCompaCapitalBudgeting&ProjectRiskProjectIRRProject’srisk(b)17%1.32.00.6r=4%+0.6×(14%–4%)=10%

10%reflectstheopportunitycostofcapitalonaninvestmentinelectricalgeneration,giventheuniqueriskoftheproject.10%24%Investmentsinharddrivesorautoretailingshouldhavehigherdiscountrates.SML公司理财-罗斯Ch1228CapitalBudgeting&ProjectRiTheCostofCapitalwithDebtTheWeightedAverageCostofCapitalisgivenby:Itisbecauseinterestexpenseistax-deductiblethatwemultiplythelasttermby(1–TC)rWACC=Equity+DebtEquity×rEquity+Equity+Debt

Debt×rDebt×(1–TC)rWACC=S+BS×rS+S+BB×rB×(1–TC)公司理财-罗斯Ch1229TheCostofCapitalwithDebtTReadtheexampleonp332B=40M,S=60M,rB=15%,β=1.41,T=34%RM-RF=9.5%,RF=11%rWACC=?rs=RF+β(RM-RF)=11%+1.41*9.5%=24.4%

=60/(60+40)*24.4%+40/(60+40)*15%*(1-34%)=18.6%rWACC=S+BS×rS+S+BB×rB×(1–TC)公司理财-罗斯Ch1230Readtheexampleonp332rWACCReadtheexampleonp333B/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%rWACC=S+BS×rS+S+BB×rB×(1-TC)公司理财-罗斯Ch1231Readtheexampleonp333B/S=0.Problem12.12onp341公司理财-罗斯Ch1232Problem12.12onp341公司理财-罗斯Ch12.12ApplytheCAPMtoestimateAdobeOnline’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%.

公司理财-罗斯Ch123312.12ApplytheCAPMtoestimatrWACC =[S/(S+B)]

rS+[B/(S+B)]

rB

(1–TC) =(0.5)(0.1474)+(0.5)(0.07)(1–0.35) =0.09645Theweightedaveragecostofcapitalis9.645%.

公司理财-罗斯Ch1234rWACC =[S/(S+B)]rS+[B12.5EstimatingInternationalPaper’sCostofCapital(p333)First,weestimatethecostofequityandthecostofdebt.Weestimateanequitybetatoestimatethecostofequity.WecanoftenestimatethecostofdebtbyobservingtheYTMofthefirm’sdebt.Second,wedeterminetheWACCbyweightingthesetwocostsappropriately.公司理财-罗斯Ch123512.5EstimatingInternational12.5EstimatingIP’sCostofCapitalTheindustryaveragebetais0.82;theriskfreerateis3%andthemarketriskpremiumis8.4%.Thusthecostofequitycapitalis

rS=RF+bi×(RM–RF)=3%+0.82×8.4%=9.89%公司理财-罗斯Ch123612.5EstimatingIP’sCostofC12.5EstimatingIP’sCostofCapitalTheyieldonthecompany’sdebtis8%andthefirmisinthe37%marginaltaxrate.Thedebttovalueratiois32%8.34percentisInternational’scostofcapital.Itshouldbeusedtodiscountanyprojectwhereonebelievesthattheproject’sriskisequaltotheriskofthefirmasawhole,andtheprojecthasthesameleverageasthefirmasawhole.=0.68×9.89%+0.32×8%×(1–0.37)=8.34%rWACC=S+BS×rS+S+BB×rB×(1–TC)公司理财-罗斯Ch123712.5EstimatingIP’sCostofC12.6ReducingtheCostofCapitalWhatisLiquidity?Liquidity,ExpectedReturnsandtheCostofCapitalLiquidityandAdverseSelectionWhattheCorporationCanDo公司理财-罗斯Ch123812.6ReducingtheCostofCapiWhatisLiquidity?Theideathattheexpectedreturnonastockandthefirm’scostofcapitalarepositivelyrelatedtoriskisfundamental.Recentlyanumberofacademicshavearguedthattheexpectedreturnonastockandthefirm’scostofcapitalarenegativelyrelatedtotheliquidityofthefirm’ssharesaswell.Thosestocksthatareexpensivetotradeareconsideredlessliquidthanthosethattradecheaply.Thetradingcostsofholdingafirm’ssharesincludebrokeragefees,thebid-askspreadandmarketimpactcosts.公司理财-罗斯Ch1239WhatisLiquidity?TheideathaLiquidity,ExpectedReturns

andtheCostofCapitalThecostoftradinganilliquidstockreducesthetotalreturnthataninvestorreceives.Investorsthuswilldemandahighexpectedreturnwheninvestinginstockswithhightradingcosts.Thishighexpectedreturnimpliesahighcostofcapitaltothefirm.公司理财-罗斯Ch1240Liquidity,ExpectedReturns

anLiquidityandtheCostofCapitalCostofCapitalLiquidityAnincreaseinliquidity,i.e.areductionintradingcosts,lowersafirm’scostofcapital.公司理财-罗斯Ch1241LiquidityandtheCostofCapiLiquidityandAdverseSelectionThereareanumberoffactorsthatdeterminetheliquidityofastock.Oneofthesefactorsisadverseselection.Thisreferstothenotionthattraderswithbetterinformationcantakeadvantageofspecialistsandothertraderswhohavelessinformation.Thegreatertheheterogeneityofinformation,thewiderthebid-askspreads,andthehighertherequiredreturnonequity.公司理财-罗斯Ch1242LiquidityandAdverseSelectioWhattheCorporationCanDoThecorporationhasanincentivetolowertradingcostssincethiswouldresultinalowercostofcapital.Astocksplitwouldincreasetheliquidityoftheshares.Astocksplitwouldalsoreducetheadverseselectioncoststherebyloweringbid-askspreads.Thisideaisanewoneandempiricalevidenceisnotyetin.公司理财-罗斯Ch1243WhattheCorporationCanDoTheWhattheCorporationCanDoCompaniescanalsofacilitatestockpurchasesthroughtheInternet.Directstockpurchaseplansanddividendreinvestmentplanshandleson-lineallowsmallinvestorstheopportunitytobuysecuritiescheaply.Thecompaniescanalsodisclosemoreinformation.Especiallytosecurityanalysts,tonarrowthegapbetweeninformedanduninformedtraders.Thisshouldreducespreads.公司理财-罗斯Ch1244WhattheCorporationCanDoComEconomicvalueaddedandthemeasurementoffinancialperformanceEVAcansimplybeviewedasearningsaftercapitalcostsEVA=[ROA-rwacc]хTotalcapital=EBIT(1-Tc)-rwacc*TotalcapitalReadtheexampleonp345公司理财-罗斯Ch1245Economicvalueaddedandthem12.7SummaryandConclusionsTheexpectedreturnonanycapitalbudgetingprojectshouldbeatleastasgreatastheexpectedreturnonafinancialassetofcomparablerisk.Otherwisetheshareholderswouldpreferthefirmtopayadividend.Theexpectedreturnonanyassetisdependentuponb.Aproject’srequiredreturndependsontheproject’s

b.Aproject’sbcanbeestimatedbyconsideringcomparableindustriesorthecyclicalityofprojectrevenuesandtheproject’soperatingleverage.Ifthefirmusesdebt,thediscountratetouseistherWACC.InordertocalculaterWACC,thecostofequityandthecostofdebtapplicabletoaprojectmustbeestimated.公司理财-罗斯Ch124612.7SummaryandConclusionsThMultiplechoices1.TheWACCisusedto______theexpectedcashflowswhenthefirmhas____________.