《金融学》（第二版） 课件 （英文） -Chapter16 Financial Structure of the Firm

Chapter16:

FinancialStructure oftheFirmObjectiveTounderstandhowafirmcancreatevaluethroughitscapitalstructuredecisions1Chapter16Contents16.1InternalVersesExternalFinancing16.2EquityFinancing16.3DebtFinancing16.4TheIrrelevanceofCapitalStructureinaFrictionlessEnvironment16.5CreatingValueThroughFinancingDecisions16.6ReducingCosts16.7DealingwithConflictsofInterest16.8CreatingNewOpportunitiesforStakeholders16.9FinancingDecisionsinPractice16.10HowtoEvaluateLeveredInvestments2IntroductionThebasicunitofanalysisofthischapteristhefirmasawholeWeexaminehowacorporation’smanagementshouldmakedecisionsregardingthemixofdebtandequityWestartwithModiglianiandMiller’smodelofafirminafrictionlessenvironmentwithnotaxandcost-freecontractcompliance,andlaterre-introducefrictions316.1InternalVersesExternalFinancingInternalfinancingsourcesoffundsthatarisefromtheoperationofthefirm,andincludesretainedearnings,increasesinaccruedwagesandaccountspayableExternalfundingsourcesoffundsfromoutsidelendersandinvestors,andincludestheproceedsofbondandequityissues4InternalVersesExternalFinancing

DecisionProcessFinancingdecisionsforanestablishedfirm(notundertakingamajorexpansion)areroutineandalmostautomatic,andmayconsistofadividendpolicy,andmaintainingabank’slineofcreditTappingoutsideresourcesistime-consumingformanagementbecauseoftheneedtosatisfystatutoryandskepticalinvestordemands,butitdoesexposethecompany’splanstomarketdiscipline516.2EquityFinancingTherearethreekindsofequityclaimsonacompany:Commonstock/sharesCorporateStockoptions/WarrantsPreferredstock6Commonstock/sharesTheresidualclaimstothecorporation’sassetsMaybedividedintoVotingstockNon-votingstockRestrictedorFoundersstock7CorporateStockoptions/WarrantsOptionsissuedbythefirmUsedtoattractandcompensatekeyemployeesandmanagementincorporatestartupsUsedto‘sweeten’thebondsofriskyventures8PreferredstockAbond-likesecuritythatnormallycannottriggeradefaultfornon-paymentofdividendUnlikebonds,ithasadividendthatisnotanexpensefortaxpurposes916.3DebtFinancingCorporateDebtisacontractualobligationofthepartoftheorganizationtomakefuturepaymentsinreturnforresourcesprovidedtoit.Itincludes:loansanddebtsecurities,suchasbondsandmortgagespromisestomakefuturepayment,suchasaccountspayable,leasesandmortgages10Wenowdescribesecureddebtlong-termleasespensionliabilities11SecuredDebtAnassetpledgedassecurityforadebtiscalledcollateral,andthedebtissaidtobesecured12SecuredDebtShouldacompanywithsecureddebtbecomeinsolvent,thenthesecuredbondholdersarepaidfromtheproceedsofthesaleofthecollateralAnymoneyremainingfromthesaleofthecollateralisaddedtothepoolusedtopayothercreditors:IRS,employeewages,debentureholders,tradecreditors,etceteraIftheproceedsareinadequate,thentheshortfallbecomesageneralliability,andispaidafterpaymenttotheIRS,andwages13Long-TermLeasesLeasinganassetforaperiodoftimethatislongcomparedtotheasset’susefullifeissimilartobuyingtheasset,andfinancingthepurchasewithdebtsecuredbytheleasedassetsThemaindifferenceisinwhobearstheriskassociatedwiththeresidualmarketvalueattheendofthetermoftheleaseAsecondarydifferencemayoccurifthelessorisunabletofullyutilizethedepreciationtaxshelter14PensionLiabilitiesPensionfundsareeitherdefinedcontributiondefinedbenefitSomepensionplansarefunded,andsomeareunfundedSomejurisdictionsrequirethatpensionplansarefunded,and/oraredisclosedinfinancialstatements,othersdonotPensionfundliabilityisoftensubstantialresolvingpreciselywhatacompany’spensionfundliabilitiesareisoftencriticalwhendeterminingcapitalstructure1516.4TheIrrelevanceofCapitalStructureinaFrictionlessEnvironmentModiglianiandMiller:Inaneconomist’sidealizedworldoffrictionlessmarketsthetotalmarketvalueofallsecuritiesissuedbyafirmisgovernedbytheearningpowerandriskofitsunderlyingrealassets,andisindependentofthemixofsecuritiesissuedtofinancethefirm16FrictionlessEnvironmentAssumptionsnoincometaxesnotransactioncostsofissuingdebt/equitiesinvestorsandmanagementhavesameinformationstakeholdersareabletoresolveconflictscostlessly17ExampleNodettDividends=Earnings=EBIT(notax,nointerest)CommonStockMarketValue=$100milliondividends=$10million/year18ExampleSomdett(otherwiseidenticaltoNodett)dividends=Earnings=EBIT-DebtServicePerpetualbondsmarketvalue=$40millioncoupon3.2million/year(risk-free,seelater)CommonStockMarketValue=$100-$40=$60milliondividends=$10-$3.2=$6.8million/year19ExampleTheprobabilitiesofEBIT(shownlater)aresuchthatthedebtisrisk-free,butthestockhasriskThecontingentclaimschaptershowedthatwecouldevaluatecommonstockbysubtractingthe(risk-free)bondvaluefromthevalueofthecompanyasawholeM&Mfollowsfromcontingentclaimstheory,whichfollowsfromtheLawofOnePrice20ExampleLetusseewhathappensifEBITisvolatile,withdiscretevaluesof$5,$10,and$15million(eachwithprobability=33.33%)ThetotaldividendsofNodettwillbe$5,$10,and$15millionThetotaldividendsofSomdettwillbe$1.8,$6.8,and$11.8million(notethat,giventhefacts,theinterestwillalwaysbepaid:thebondholdersareriskless)21ExampleTheexpecteddividendsareNodett$10millionSomdett$6.8million(thesamevaluesasinthecaseofnovolatility,resultsfromthedistribution)ThestandarddeviationofNodett’sdividendsis(((-5)^2+0^2+5^2)/3)^0.5=$4.082millionThestandarddeviationofSomdett’sdividends=$4.08222ExampleIfwenowassumethat1,000,000sharesofNodett,and600,000sharesofSomdettwereissued,(marketvalueisthen$100each),eachshare’sreturnhasthestatistics:23ExampleNotethatthetwovaluesfallonthelinem=rf+s

(firm’sreturn-bond’sreturn)WewouldexpectthisCML-likebehaviorAdditionally,iftheun-leveragedstockhasabeta=b,thenthebetaoftheleveragedstockisb/0.624ExampleConclusionIfNodettweretoissue$40millionofdebt,andrepurchase400,000sharesat$100each,thevalueoftheoutstandingshareswouldremainunchangedat$(100,000,000-40,000,000)/(1,000,000-400,000)=$100eachIfthedebtwasnot,infact,risk-free,thentheanalysiswillbecomealittlemorecomplex,buttheessentialconclusionsareunchanged2516.5CreatingValueThroughFinancingDecisionsWenowtakeastepinthedirectionofgreaterrealismWereintroducetaxBankruptcycostsCostlystakeholderconflictsFinancialintermediarybenefits2616.6ReducingCostsByitschoiceofcapitalstructure,afirmcanreduceitscosts.Examplesaretaxes.Subsidies,andthecostoffinancialdistress27TaxesInadditiontoshareholdersandcreditors,thegovernmenttaxauthorityisaclaimanttotheEBITofafirmSomeofthetaxesarepaidatthecorporatelevel,andsomeattheleveloftheindividualshareholdersrealizedcapitalgainspersonaltaxesoncashdividends28ExampleReconsiderNodettandSomdett,thistimeinaworldwherethereisa34%taxonearningsafterinterest,andnopersonalincometaxes29ClaimantClasses30Leverage(Gearing)Equations31MaximizationofSomdett’sCashFlowThecashflowsabovearethecombinedflowstotheshareholders&stockholdersThegreatertheannualinterestpayment,thegreaterthecombinedcashflow,andthegreaterthevalueofthefirmasawholeTheMarketValueofSomdett=MarketValueofNodett+PVInterestTaxShield32MaximizationofSomdett’sCashFlowEarlier,weshowedthatthe$40milliondebtissueat8%wasrisk-free,giventhedistributionofearningsThemarketvaluesofclaimsisthengiveninthenexttable:33MarketValuesofClaims34ValueofTaxShieldThevalueofthetaxshieldisthelossofvaluetothegovernmentofissuingbonds,$(34.0-20.4)million=$13.6million=valueofbonds*interestRecallfrombefore,weconvertedNodettintoanimageofSomdettbypurchasingsharesandissuing$40millionofbonds35ValueofTaxShieldDirectlyaftertheannouncement,thesharepricewillrisefrom$66to$(66+13.6)=$79.6eachThecompanywouldrepurchase$40million/$79.6=502,513shares,leaving497,487outstandingSellerswillbesubjecttoanadditionalcapitalgainof$13.6/share,andholderstoanunrealizedcapitalgainofthesameamount36Sub-chapterSCorporationsAsmallbusinessmaysetupasa‘sub-chapterS’corporationandbetaxedasapartnershipInthiscase,theearningsarepassedthroughtoshareholderswithoutcorporatetaxes,sothereisnotaleverageadvantageTheModiglianiandMillersymmetryisnotshatteredbyintroducingtaxesinthiscase37SubsidiesSomegovernmentsofferincentivestobusinessestore-locatetoachieveasocialgoalThegovernmentmayguaranteeabondissue,resultinginlowerdebtserviceThevalueofthedebtguaranteeisacapitalgaintotheshareholders,offsetbythelowervalueoftheinteresttaxshield,andtheadditionalcostsofrelocatingthefacility38ReducingCosts:SubsidiesSomegovernmentsofferincentivestobusinessestore-locatetoachieveasocialgoalThegovernmentmayofferinvestmenttaxcredits,and/orimmediatedepreciationofnewcapitalinvestments,and/ortaxholidaysTheseareessentiallypaymentstotheshareholders,thatarepartlyoffsetbyotherlosses39ReducingCosts:FinancialDistressLet’slookatafirmwherethereisaprobabilityoffinancialdistressFinancialdistress:theimminentdangerofdefaultingondebt404116.7DealingwithConflictsofInterest:‘FreeCashFlow’Havingdebtoutstandingreducesthe‘freecashflow’andthismakesmanagersmoreaccountabletothemarketTheneedfornewfinancingoccursmorefrequently,makingmanagerslesslikelytoinvestinprojectsthatincreasetheirpower,prestigeorperks42IncreasingRisksManagement(actingintheinterestsofshareholders)mayincreasetotalriskattheexpenseoftotalvalueofthefirmBadpennycurrentlyhasbondsandstockoutstanding,eachwithamarketvalueof$50million,andhasassetsinvestedinshort-termT-billsManagemententersintoaprojectwithCaponeEnterprisesinwhichanunfaircoin(withaprobability60%heads)istossedintheairIfa‘tail’shows,CaponeIndustrieswilldoubleBadpenny’sinvestmentinT-bills,otherwise,CaponetakesallBadpenny’sT-bills43Badpenny(Continued)IfBadpennyisunlucky,itsbondsandstockwillbeworthnothingIfBadpennyislucky,itsbondsretaintheoriginalvalue,butthestockpricewilltripleTheexpectedwealthofBadpenny’sbondholdersis$(1-0.60)*50million=$20millionTheexpectedwealthofthestockholdersis$(1-0.60)*(200-50)million=$60millionNewexpectedvalueofthefirm=$80million4416.8CreatingNewOpportunitiesforStakeholdersCapitalstructuredecisionsmaycreatevaluebycreatingopportunitiesthatmaynototherwisebeavailable,oravailableonlyatahigherpriceExample:Pensionpromises4516.9FinancialDecisionsinPracticeTheselectionoffinancingmethodiscompanyspecificasitwilldependupontheeconomicenvironmentinwhichthefirmfindsitselfWhatfinancingmethodismostappropriateforthefollowingfivecompanies?46OrreOilCompanyNeeds$10millionnowtotestdrillinNewGuinea$10millionmoretodevelopiftestissuccessfulCurrentlyEarnings$2/share,&Stockis$10/share(Industry:Stock@10to12timesearnings)Debtratio25%(Industryis40%)Totalassets$105million47GormehFoods,Inc.CurrentlyAssets$15million,5equalshareholdersProfitable,rapidgrowthcausing$$strainNeed$2millionfornewequipmentRealestateheavilymortgagedInventorysecuresbankloanAccountsreceivablesarefactored48BombayTextileCompanySub-Continentbasedclothmanufacturer50%productiongoestosmallclothingmanufacturersinSingaporeP&Efinancedinpartbygovernmentloan,nootherlong-termdebtPayscashforinputs,andoffers60daycredittoSingaporecustomersGrowthinexports(now5million)haveledtoaneedfor$500,000newfinancing49Holey’sBurgerQueenHoley’ssavingsare$50,000,andhewishestopurchaseaBurgerQueenfranchiseBurgerQueenrequiresminimumof$100,000equitycapital,andwillthenprovidedebtfinancingoftheremainderAnexistingBurgerQueenisonthemarketfor$250,00050LeeProductionsSmallmovieproductioncompanywith10ownersOnerecent“unexpected”successWanttodoublethenumberoffilmsbeingproducedRecentlyincorporated,andwantstoraise$10millionfromoutsideinvestors51FiveFinancingMethodsLoansfromfriendsorrelativesLeasingArrang