CH10TheCostofCapital(财务管理,英文版)

10-1Copyright©2001byHarcourt,Inc.Allrightsreserved.CHAPTER10TheCostofCapitalCostofcapitalcomponentsAccountingforflotationcostsWACCAdjustingcostofcapitalforriskEstimatingprojectrisk10-2Copyright©2001byHarcourt,Inc.Allrightsreserved.Whattypesofcapitaldofirmsuse?DebtPreferredstockCommonequity:RetainedearningsNewcommonstock10-3Copyright©2001byHarcourt,Inc.Allrightsreserved.StockholdersfocusonA-TCFs.Therefore,weshouldfocusonA-Tcapitalcosts,i.e.,useA-TcostsinWACC.Onlykdneedsadjustment.Shouldwefocusonbefore-taxorafter-taxcapitalcosts?10-4Copyright©2001byHarcourt,Inc.Allrightsreserved.Thecostofcapitalisusedprimarilytomakedecisionsthatinvolveraisingnewcapital.So,focusontoday’smarginalcosts(forWACC).Shouldwefocusonhistorical(embedded)costsornew(marginal)costs?10-5Copyright©2001byHarcourt,Inc.Allrightsreserved.A15-year,12%semiannualbondsellsfor$1,153.72.What’skd?6060+1,0006001230i=?30-1153.726010005.0%x2=kd=10%NI/YRPVFVPMT-1,153.72...INPUTSOUTPUT10-6Copyright©2001byHarcourt,Inc.Allrightsreserved.ComponentCostofDebtInterestistaxdeductible,sokdAT=kdBT(1–T)=10%(1–0.40)=6%.Usenominalrate.Flotationcostssmall.Ignore.10-7Copyright©2001byHarcourt,Inc.Allrightsreserved.What’sthecostofpreferredstock?Pp=$111.10;10%Q;Par=$100.Usethisformula:%.0.9090.010.111$10$PDkppp10-8Copyright©2001byHarcourt,Inc.Allrightsreserved.PictureofPreferredStock2.502.50012kp=?-111.1...2.50$111.10==.kPer==2.25%;kp(Nom)=2.25%(4)=9%.DQkPer$2.50kPer$2.50$111.1010-9Copyright©2001byHarcourt,Inc.Allrightsreserved.Note:Preferreddividendsarenottaxdeductible,sonotaxadjustment.Justkp.Nominalkpisused.Ourcalculationignoresflotationcosts.10-10Copyright©2001byHarcourt,Inc.Allrightsreserved.Ispreferredstockmoreorlessriskytoinvestorsthandebt?Morerisky;companynotrequiredtopaypreferreddividend.However,firmstrytopaypreferreddividend.Otherwise,(1)cannotpaycommondividend,(2)difficulttoraiseadditionalfunds,(3)preferredstockholdersmaygaincontroloffirm.10-11Copyright©2001byHarcourt,Inc.Allrightsreserved.Whyisyieldonpreferredlowerthankd?Corporationsownmostpreferredstock,because70%ofpreferreddividendsarenontaxabletocorporations.Therefore,preferredoftenhasalowerB-TyieldthantheB-Tyieldondebt.TheA-Tyieldtoaninvestor,andtheA-Tcosttotheissuer,arehigheronpreferredthanondebt.Consistentwithhigherriskofpreferred.10-12Copyright©2001byHarcourt,Inc.Allrightsreserved.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%.10-13Copyright©2001byHarcourt,Inc.Allrightsreserved.Whyisthereacostforretainedearnings?Earningscanbereinvestedorpaidoutasdividends.Investorscouldbuyothersecurities,earnareturn.Thus,thereisanopportunitycostifearningsareretained.10-14Copyright©2001byHarcourt,Inc.Allrightsreserved.Opportunitycost:Thereturnstockholderscouldearnonalternativeinvestmentsofequalrisk.Theycouldbuysimilarstocksandearnks,orcompanycouldrepurchaseitsownstockandearnks.So,ksisthecostofretainedearnings.10-15Copyright©2001byHarcourt,Inc.Allrightsreserved.Threewaystodeterminecostofcommonequity,ks:1.CAPM:ks=kRF+(kM–kRF)b.2.DCF:ks=D1/P0+g.3.Own-Bond-Yield-Plus-RiskPremium:ks=kd+RP.10-16Copyright©2001byHarcourt,Inc.Allrightsreserved.What’sthecostofcommonequitybasedontheCAPM?kRF=7%,RPM=6%,b=1.2.ks=kRF+(kM–kRF)b.=7.0%+(6.0%)1.2=14.2%.10-17Copyright©2001byHarcourt,Inc.Allrightsreserved.What’stheDCFcostofcommonequity,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%.10-18Copyright©2001byHarcourt,Inc.Allrightsreserved.Supposethecompanyhasbeenearning15%onequity(ROE=15%)andretaining35%(dividendpayout=65%),andthissituationisexpectedtocontinue.What’stheexpectedfutureg?10-19Copyright©2001byHarcourt,Inc.Allrightsreserved.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?10-20Copyright©2001byHarcourt,Inc.Allrightsreserved.CouldDCFmethodologybeappliedifgisnotconstant?YES,nonconstantgstocksareexpectedtohaveconstantgatsomepoint,generallyin5to10years.Butcalculationsgetcomplicated.10-21Copyright©2001byHarcourt,Inc.Allrightsreserved.Findksusingtheown-bond-yield-plus-risk-premiummethod.(kd=10%,RP=4%.)ThisRPCAPMRP.Producesballparkestimateofks.Usefulcheck.ks=kd+RP=10.0%+4.0%=14.0%10-22Copyright©2001byHarcourt,Inc.Allrightsreserved.What’sareasonablefinalestimateofks?MethodEstimateCAPM14.2%DCF13.8%kd+RP14.0%Average14.0%10-23Copyright©2001byHarcourt,Inc.Allrightsreserved.1.Whenacompanyissuesnewcommonstocktheyalsohavetopayflotationcoststotheunderwriter.2.Issuingnewcommonstockmaysendanegativesignaltothecapitalmarkets,whichmaydepressstockprice.Whyisthecostofretainedearningscheaperthanthecostofissuingnewcommonstock?10-24Copyright©2001byHarcourt,Inc.Allrightsreserved.Twoapproachesthatcanbeusedtoaccountforflotationcosts:Includetheflotationcostsaspartoftheproject’sup-frontcost.Thisreducestheproject’sestimatedreturn.Adjustthecostofcapitaltoincludeflotationcosts.Thisismostc