taiwan财务管理_lecture11(ch11)

©TheMcGraw-HillCompanies,Inc.,200111-1Irwin/McGraw-HillIrwin/McGraw-HillChapter11FundamentalsofCorporateFinanceThirdEditionTheCostofCapitalBrealeyMyersMarcusslidesbyMatthewWillIrwin/McGraw-Hill©TheMcGraw-HillCompanies,Inc.,2001©TheMcGraw-HillCompanies,Inc.,200111-2Irwin/McGraw-HillTopicsCoveredGeothermal’sCostofCapitalWeightedAverageCostofCapital(WACC)CapitalStructureRequiredRatesofReturnBigOil’sWACCInterpretingWACCFlotationCosts©TheMcGraw-HillCompanies,Inc.,200111-3Irwin/McGraw-HillCostofCapitalCostofCapital-Thereturnthefirm’sinvestorscouldexpecttoearniftheyinvestedinsecuritieswithcomparabledegreesofrisk.CapitalStructure-Thefirm’smixoflongtermfinancingandequityfinancing.©TheMcGraw-HillCompanies,Inc.,200111-4Irwin/McGraw-HillCostofCapitalExampleGeothermalInc.hasthefollowingstructure.Giventhatgeothermalpays8%fordebtand14%forequity,whatistheCompanyCostofCapital?©TheMcGraw-HillCompanies,Inc.,200111-5Irwin/McGraw-HillCostofCapitalExample-GeothermalInc.hasthefollowingstructure.Giventhatgeothermalpays8%fordebtand14%forequity,whatistheCompanyCostofCapital?100%$647AssetsValueMarket70%$453EquityValueMarket30%$194DebtValueMarket©TheMcGraw-HillCompanies,Inc.,200111-6Irwin/McGraw-HillCostofCapitalExample-GeothermalInc.hasthefollowingstructure.Giventhatgeothermalpays8%fordebtand14%forequity,whatistheCompanyCostofCapital?12.2%=(.7x14%)+(.3x8%)=ReturnPortfolio©TheMcGraw-HillCompanies,Inc.,200111-7Irwin/McGraw-HillCostofCapitalExample-GeothermalInc.hasthefollowingstructure.Giventhatgeothermalpays8%fordebtand14%forequity,whatistheCompanyCostofCapital?12.2%=(.7x14%)+(.3x8%)=ReturnPortfolioInterestistaxdeductible.Givena35%taxrate,debtonlycostsus5.2%(i.e.8%x.65).11.4%=(.7x14%)+(.3x5.2%)=WACC©TheMcGraw-HillCompanies,Inc.,200111-8Irwin/McGraw-HillWACCWeightedAverageCostofCapital(WACC)-Theexpectedrateofreturnonaportfolioofallthefirm’ssecurities.Companycostofcapital=Weightedaverageofdebtandequityreturns.©TheMcGraw-HillCompanies,Inc.,200111-9Irwin/McGraw-HillWACCrassets(Dxr)+(Exr)Vdebtequity=()()rxrxrassetsDVdebtEVequity=+r=assetstotalincomevalueofinvestments©TheMcGraw-HillCompanies,Inc.,200111-10Irwin/McGraw-HillWACCThreeStepstoCalculatingCostofCapital1.Calculatethevalueofeachsecurityasaproportionofthefirm’smarketvalue.2.Determinetherequiredrateofreturnoneachsecurity.3.Calculateaweightedaverageoftheserequiredreturns.©TheMcGraw-HillCompanies,Inc.,200111-11Irwin/McGraw-HillWACCTaxesareanimportantconsiderationinthecompanycostofcapitalbecauseinterestpaymentsaredeductedfromincomebeforetaxiscalculated.©TheMcGraw-HillCompanies,Inc.,200111-12Irwin/McGraw-HillWACCWeighted-averagecostofcapital=[][]WACC=x(1-Tc)r+xrDVdebtEVequity©TheMcGraw-HillCompanies,Inc.,200111-13Irwin/McGraw-HillWACCExample-ExecutiveFruithasissueddebt,preferredstockandcommonstock.Themarketvalueofthesesecuritiesare$4mil,$2mil,and$6mil,respectively.Therequiredreturnsare6%,12%,and18%,respectively.Q:DeterminetheWACCforExecutiveFruit,Inc.©TheMcGraw-HillCompanies,Inc.,200111-14Irwin/McGraw-HillWACCExample-continuedStep1FirmValue=4+2+6=$12milStep2RequiredreturnsaregivenStep3[]()()WACC=x(1-.35).06+x.12+x.18=.123or12.3%412212612©TheMcGraw-HillCompanies,Inc.,200111-15Irwin/McGraw-HillWACCIssuesinUsingWACCDebthastwocosts.1)returnondebtand2)increasedcostofequitydemandedduetotheincreaseinriskBetasmaychangewithcapitalstructureCorporatetaxescomplicatetheanalysisandmaychangeourdecision[][]B=xB+xBassetsDVdebtEVequity©TheMcGraw-HillCompanies,Inc.,200111-16Irwin/McGraw-HillMeasuringCapitalStructureInestimatingWACC,donotusetheBookValueofsecurities.InestimatingWACC,usetheMarketValueofthesecurities.BookValuesoftendonotrepresentthetruemarketvalueofafirm’ssecurities.©TheMcGraw-HillCompanies,Inc.,200111-17Irwin/McGraw-HillMeasuringCapitalStructureMarketValueofBonds-PVofallcouponsandparvaluediscountedatthecurrentinterestrate.MarketValueofEquity-Marketpricepersharemultipliedbythenumberofoutstandingshares.©TheMcGraw-HillCompanies,Inc.,200111-18Irwin/McGraw-HillMeasuringCapitalStructureBigOilBookValueBalanceSheet(mil)BankDebt200$25%LTBonds200$25%CommonStock100$13%RetainedEarnings300$38%Total800$100%©TheMcGraw-HillCompanies,Inc.,200111-19Irwin/McGraw-HillMeasuringCapitalStructureBigOilBookValueBalanceSheet(mil)BankDebt200$25%LTBonds200$25%CommonStock100$13%RetainedEarnings300$38%Total800$100%Ifthelongtermbondspayan8%couponandmaturein12years,whatistheirmarketvalueassuminga9%YTM?70.185$09.1216....09.11609.11609.1161232PV©TheMcGraw-HillCompanies,Inc.,200111-20Irwin/McGraw-HillMeasuringCapitalStructureBigOilMARKETValueBalanceSheet(mil)BankDebt(mil)200.0$12.6%LTBonds185.7$11.7%TotalDebt385.7$24.3%CommonStock1,200.0$75.7%Total1,585.7$100.0%©TheMcGraw-HillCompanies,Inc.,200111-21Irwin/McGraw-HillRequiredRatesofReturnBondsCommonStockr=YTMdr=CAPM=r+B(r-r)efmf©TheMcGraw-HillCompanies,Inc.,200111-22Irwin/McGraw-HillRequiredRatesofReturnDividendDiscountModelCostofEquityPerpetuityGrowthModel=solveforreP=Divr-g01er=DivP+ge10©TheMcGraw-HillCompanies,Inc.,200111-23Irwin/McGraw-HillRequiredRatesofR