公司理财：原理与实践（第8版）课件 第9章 资本成本与资本结构

CorporatefinanceEighthEditionChapter9ThecostofcapitalandcapitalstructureWhatisthecostofcapital?Allprovidersoffinancerequirereturns.Therequiredreturnwillreflecttheriskoftheinvestmentandthereturnsofalternatives.Companiesneedinformationaboutthecostofdifferentsourcesoffinanceinordertofindtheoverallcostoffinanceandtomakeinvestmentandfinancingdecisions.Perhapsan‘optimum’capitalstructureexistswhichafirmcanseektoachieve.OrdinarysharesThecostofequitycanbefoundfromtherearrangeddividendgrowthmodel:Ke=costofequityP0=thecurrentexdividendsharepriceD1=thedividendreceivedeachyearg=theexpectedgrowthrateofdividendsgP0D1Ke+=Ordinaryshares(continued)CalculatingKeusingdividendgrowthmodel:Currentexdividendshareprice=417pCurrentdividendpershare=23pExpecteddividendgrowthrate=5%Nextyear’sdividend(D1)=23×1.05=24.2pKe=(24.2/417)+0.05=0.058+0.05=0.108Ke=10.8%Ordinaryshares(continued)ThecostofequitycanalsobefoundfromtheCAPM:

Rj=Rf+βj

(Rm–Rf)where:Rm=returnofthemarketRf=risk-freerateofreturn(Rm–Rf)=equityriskpremiumβj

=betavalueofordinaryshareRetainedearningsRetainedearningshaveanopportunitycostwhichisequaltothecostofequity.Thecostofretainedearningscanthusbefoundinthesamewayasthecostofequity.Itisamistaketoseeretainedearningsasafreesourceoffinance.PreferencesharesThecostofpreferencesharescanbefoundbydividingthepreferencedividendbytheexdividendmarketprice:Kps=costofpreferencesharesP0=currentexdividendpreferencesharepriceDp=preferencedividendP0DpKps=Preferenceshares(continued)Calculatingthecostofpreferenceshares:8%preferenceshares,nominalvalue:100pCurrentexdividendmarketprice:89pKp=(0.08×100)/89=0.09Kp=9.0%IrredeemablebondsLikepreferenceshares,bondsinvolveaconstantannualpaymentinperpetuityKd=costofdebtI=annualinterestpaymentP0=currentex-interestmarketpricenotethatinterestistax-deductibleP0IKd=Irredeemablebonds(continued)Calculatingthecostofirredeemablebonds:9%irredeemablebondsEx-interestmarketprice:£108Corporationtax:30%Kid(beforetax)=9/108=8.3%Kid(aftertax)=8.3×(1

0.3)=5.8%RedeemablebondsRedeemablebondsinvolvesseveralfixedinterestpaymentsplusredemptionvalueI=interestpaymentRV=redemptionvalueorprincipalKd=costofdebtcapitaln=numberofyearstomaturityCT=corporationtaxrate)1()1()1()1()1(0RVCTICTICTIKdCTIP+

+

++++=L)21(Kd+)31(Kd+)n1(Kd+Redeemablebonds(continued)Thecostofdebtofredeemablebondsistheinternalrateofreturnofthevaluationmodelonthepreviousslide.Usingthismodeltofindtheafter-taxcostofdebtismoreaccuratethanmultiplyingthebefore-taxcostofdebtby(1

CT),sincetheredemptionvalueisnottax-deductible.Thecostofdebtcanbefoundusinglinearinterpolationorafinancialcalculator.Redeemablebonds(continued)Hawawini–Vorabondapproximationmodelcanalsobeusedtocalculatecostofdebt:

I+(P

NPD)

Kd=

n

P+0.6×(NPD

P)I =interestpayments(£)P =parvalue(£100)NPD =ex-interestmarketvalue(£)n =numberofyearstomaturityRedeemablebonds(continued)UsingtheHawawini–Voramodel:5%redeemablebond(I=5,P=100)Ex-interestmarketpriceof£96(NPD=96)Redemptionin6-years’time(n=6)5+(100

96)

Krd= 6 =5.8% 100+0.6×(96

100)After-taxcostofdebt=5.8×0.7=4.1%BankborrowingsBankborrowingsarenottradedandhavenomarketvaluethatinterestcanberelatedto.Costofbankborrowingscanbefoundbyusingaverageinterestpaidinagivenperiod.Alternatively,thecostoftradeddebtmaybeusedasthebestapproximation.Here,after-taxinterestrate=7x0.7=4.9%.CalculatingtheWACCMarketvaluesorbookvalues?BookvaluesarehistoricalMarketvaluesreflectcurrentrequirementsBeforeoraftertax?Before-taxWACCforbefore-taxcashflowsAfter-taxWACCforafter-taxcashflowsWhichtaxratetouse?CalculatingtheWACC(continued)Tofindtheaveragecostofcapital,weweightindividualcostsofcapitalbytheirproportionsinthefirm’scapitalstructureE=valueofequityD=valueofdebtE/(E+D)istheproportionofequityD/(E+D)istheproportionofdebt)()×1()(×EDDCTKdEDEKeWACC+

++=CalculatingtheWACC(continued)Costofequity: Ke=10.8%Costofpreferenceshares: Kp=9.0%Costofirredeemabledebt: Kid

=5.8%Costofredeemabledebt: Krd

=4.1%Costofbankloans: Kbl

=4.9%Note,relativecostsofthedifferentsourcesreflecttheirrelativerisks,i.e.reflecttherisk-returnhierarchyoffinancialsecurities.CalculatingtheWACC(continued)Weightingbymarketvalues(seetextbook):Equity: (10.8%×53,376)Preferenceshares: +(9.0%×8,010)Irredeemabledebt: +(5.8%×9,180)Redeemabledebt: +(4.1%×4,464)Bankdebt: +(4.9%×3,260) =736,071/78,290=9.4%=WACCAverageandmarginalcostThemarginalcostofcapitalisthecostoftheincrementalcapitalraised.Initially,ascheaperdebtisadded,averagecostofcapitalwillfall.Afteraminimumisreached,theaveragecostofcapitalwillriseduetoincreasedrisk.Themarginalcostwillinitiallybelowerthanaverage;aftertheminimum,itwillbehigher.Averageandmarginalcost(continued)WhentouseWACC?WACCcanbeusedininvestmentappraisalincertainrestrictedcircumstances: Businessriskofinvestmentprojectissimilarto businessriskofexistingoperations. Incrementalfinanceisraisedinproportions thatpreserveexistingcapitalstructure. Requiredreturnofexistingfinancesourcesis notaffectedbynewinvestmentproject.CAPMandinvestmentappraisalTheassetbetaistheweightedaverageofthebetasofequityanddebt:

βa=βe

E

+βd

D(1–Ct) E+D(1–Ct) E+D(1–Ct)where:E=MarketvalueofequityD=MarketvalueofdebtCt=CorporationtaxrateIfweassumeβd=0:βa=βe×

E

E+D(1–Ct) Thisformulaisforregearinganequitybeta.Rearranging:βe=βa×E+D(1–Ct) EThisformulaisforungearinganassetbeta.CAPMandinvestmentappraisal(continued)TofindaWACCwhichtakesaccountofthesystematicriskofaninvestmentproject: findappropriateproxycompanyequitybetas. ungearproxyequitybetastoremoveproxy companyfinancialriskandgiveassetbetas. regearaverageassetbetatoreflectthe investingcompany’sfinancialrisk. applyCAPMtogiveproject-specificKe. usenewcostofequitytofindnewWACC.CAPMandinvestmentappraisal(continued)ProblemswithusingtheCAPMininvestmentappraisal: AretheassumptionsoftheCAPMapplicableto therealworld? Canappropriateproxycompaniesandtheir equitybetasbeidentified? Istherelevantdatatoungearproxyequity betasavailable?CAPMandinvestmentappraisal(continued)BenefitofusingCAPMininvestmentappraisal:Betterinvestmentdecisionsaremadeasthediscountratecanbetailoredtoprojectrisk,whichisnotthecasewithhistoricWACC.Lower-riskprojectspreviouslyrejectedusingWACCarenowaccepted.Higher-riskprojectspreviouslyacceptedusingWACCarenowrejected.CAPMandinvestmentappraisal(continued)Now,betterinvestmentdecisionsaremadeintheshadedareasCAPMandinvestmentappraisal(continued)PracticalproblemswithWACCSecuritymarketvaluesmaybeunavailable:Usesubstitutesecuritywithsimilarrisk,returnandmaturityAddriskpremiumtogovernmentbondyieldSecuritiesmaybecomplex:ConvertiblesecuritiesFloatingratenotesForeigncurrenciesCurrencyandinterestrateswapsProblemswithcalculatingWACCWhichsourcesoffinanceshouldbeincludedintheWACCcalculation?Whataboutlong-termbankdebt?UsebookvalueandaverageinterestrateAccountsmaynotprovideadequatedataCompanymayhavelargerangeofsecurities.WACCisnotconstant.CostofcapitalforFDIProject-specificcostofcapitalshouldbeusedasdiscountratethatreflectsvaluetothefirmofundertakingparticularactivities.Averagecostofcapitalmaybeusedforprojectsofsimilarrisktoexistingactivities,project-specificcostofcapitalotherwise.Appropriatecostofcapitalatlocallevelisthatoflocalfirmsinsameindustry.CostofcapitalforFDI(continued)HigherlevelofriskassociatedwithFDIimplieshigherdiscountrateshouldbeused.However,possiblereductioninparentcompanyriskduetoFDIdiversifyingparentcompany’stotalriskexposure.ConsiderationshouldbegiventohowCAPMmaybeusedtoderiveFDIdiscountrate.InternationalfinancingdecisionMinimisingcostofcapitaldependson:

relativeproportionsofequityanddebt;relativeproportionsoflong-/short-termfunds;availabilityofdifferentsourcesoffunds;effectofdifferentsourcesonriskofcompany;directandindirectcostsofsourcesoffinance;effectoftaxonrelativecostsofequity/debt.

Internationalfinancingdecision(continued)Gearing:Groupgearingversussubsidiarygearing.Ifdebtsofsubsidiariesareguaranteed,theirgearingdependsonexploitinganylocaladvantagesandgroupgearingisoptimised.Ifdebtsofsubsidiariesarenotguaranteed,gearingofeachsubsidiarymustbeoptimised.Internationalfinancingdecision(continued)Taxation:Companiesmustconsidertax-minimisingcurrency,country,financingmethodandfundtransfermethod.Taxefficiencyofdebtencouragesitsuse.Maximumlevelofgearingmaybeimposed.Internationalfinancingdecision(Continued)Politicalrisk:Useoflocalfinancereducespoliticalrisk,asdoesinvolvinginternationalbanks.Avoidingsubsidiaryloanguaranteesmayalsoreducepoliticalrisk.Currencyrisk:Matchingoperatingcashflowswithinterestpaymentsreducescurrencyrisk.Whatisgearing?Themixtureofdebtfinancerelativetoequityfinancethatacompanyusestofinanceitsbusinessoperations.Gearingratiosassessfinancialrisk:debt/equityratio: D/Ecapitalgearing: D/(D+E)marketvaluespreferredtobookvalues.ShouldDincludeshort-termdebtornot?ImplicationsofhighgearingIncreasedvolatilityofequityreturnsariseswithhighgearingsinceinterestmustbepaidbeforepayingreturnstoshareholders.Increaseriskofbankruptcyalsooccurs.Stockexchangecredibilityfallsasinvestorslearnofcompany’sfinancialposition.Short-termismmovesmanagers’focusawayfrommaximisationofshareholderwealth.OptimalcapitalstructureKeyquestion:Doescompany’smixofdebtandequityfinanceaffectitsweightedaveragecostofcapital?Isthereamixofdebtandequitythatwillminimisetheaveragecostofcapital?Minimumcostofcapitalmaximisescompany’smarketvaluehencemaximisesshareholderwealth.SimplifyingassumptionsNotaxesexist.Financingchoiceisbetweenordinarysharesandperpetualdebt.Capitalstructurechangesincurnocostandentailreplacingdebtwithequityorviceversa.Allearningsarepaidoutasdividends.Businessriskisconstantovertime.Earningsandhencedividendsareconstant.TraditionalapproachTraditionalapproach(continued)Keincreasesasgearingincreasesduetorisingfinancialriskand,later,bankruptcyrisk.Kdrisesathighlevelsofgearingduetobankruptcyrisk.Ascompanystartstoreplaceexpensiveequitywithcheaperdebt,WACCfalls.Asgearingcontinuestoincrease,KeandKdincrease,offsettingthebenefitofcheapdebt.NetincomeapproachMillerandModigliani(I)Capitalmarketsassumedtobeperfect.Noriskofbankruptcy,soKdcurveisflat.LinearincreaseinKeduetoincreasingfinancialrisk.Ascompanygearsupandreplacesequitywithdebt,benefitofcheaperdebtisexactlybalancedbytheincreasingcostofequity.Nooptimalcapitalstructureisfound.MillerandModigliani(I)(continued)ArbitrageproofusingcompaniesAandB: A BNetincome 1,000 1,000Interestat5% Nil

150Earnings 1,000 850Dividebycostofequity 10%

11%MVofEquity

10,000 7,727MVofDebt Nil

3,000TotalMarketValue

10,000

10,727

MillerandModigliani(I)(continued)Assumeyouown1%ofB’sshares:(1)Sellyoursharesfor£77.27(2) Borrow£30tocopyB’sgearing(3) Buy1%ofA’sshares(surplusof£7.27)ReturnonB’sshares:11%×£77.27=£8.50ReturnonA’sshares:10%×£100=£10Lessinterest:£30×5% =£1.50leaves£8.50Samereturnbutyounowhave£7.27surplusMillerandModigliani(I)(continued)SellingwillcauseB’ssharepricetofallandbuyingwillcauseA’ssharepricetorise.ReturnonB’sshareswillriseandreturnonA’sshareswillfall.WACCofA(10%)willfallandWACCofB(9.3%)willrise,andWACCswillconvergeuntilanyarbitrageopportunityiseliminated.TheclaimthatidenticalbusinessriskwillhaveanidenticalWACCisshowntobetrue.MillerandModigliani(II)M&M