公司理财英文版课件Chap016

Chapter16FinancialLeverageandCapitalStructurePolicyMcGraw-Hill/IrwinCopyright©2010byTheMcGraw-HillCompanies,Inc.Allrightsreserved.KeyConceptsandSkills•Understandtheeffectoffinancialleverageoncashflowsandthecostofequity•Understandtheimpactoftaxesandbankruptcyoncapitalstructurechoice•Understandthebasiccomponentsofthebankruptcyprocess16-2ChapterOutline•TheCapitalStructureQuestion•TheEffectofFinancialLeverage•CapitalStructureandtheCostofEquityCapital•M&MPropositionsIandIIwithCorporateTaxes•BankruptcyCosts•OptimalCapitalStructure•ThePieAgain•ThePecking-OrderTheory•ObservedCapitalStructures•AQuickLookattheBankruptcyProcess16-3CapitalRestructuring•Wearegoingtolookathowchangesincapitalstructureaffectthevalueofthefirm,allelseequal•Capitalrestructuringinvolveschangingtheamountofleverageafirmhaswithoutchangingthefirm’sassets•Thefirmcanincreaseleveragebyissuingdebtandrepurchasingoutstandingshares•Thefirmcandecreaseleveragebyissuingnewsharesandretiringoutstandingdebt16-4ChoosingaCapitalStructure•Whatistheprimarygoaloffinancialmanagers?–Maximizestockholderwealth•Wewanttochoosethecapitalstructurethatwillmaximizestockholderwealth•WecanmaximizestockholderwealthbymaximizingthevalueofthefirmorminimizingtheWACC16-5TheEffectofLeverage•HowdoesleverageaffecttheEPSandROEofafirm?•Whenweincreasetheamountofdebtfinancing,weincreasethefixedinterestexpense•Ifwehaveareallygoodyear,thenwepayourfixedcostandwehavemoreleftoverforourstockholders•Ifwehaveareallybadyear,westillhavetopayourfixedcostsandwehavelessleftoverforourstockholders•LeverageamplifiesthevariationinbothEPSandROE16-6Example:FinancialLeverage,EPSandROE–PartI•Wewillignoretheeffectoftaxesatthisstage•WhathappenstoEPSandROEwhenweissuedebtandbuybacksharesofstock?16-7Example:FinancialLeverage,EPSandROE–PartII•VariabilityinROE–Current:ROErangesfrom6%to20%–Proposed:ROErangesfrom2%to30%•VariabilityinEPS–Current:EPSrangesfrom$0.60to$2.00–Proposed:EPSrangesfrom$0.20to$3.00•ThevariabilityinbothROEandEPSincreaseswhenfinancialleverageisincreased16-8Break-EvenEBIT•FindEBITwhereEPSisthesameunderboththecurrentandproposedcapitalstructures•IfweexpectEBITtobegreaterthanthebreak-evenpoint,thenleveragemaybebeneficialtoourstockholders•IfweexpectEBITtobelessthanthebreak-evenpoint,thenleverageisdetrimentaltoourstockholders16-9Example:Break-EvenEBIT$1.00500,000500,000EPS$500,000EBIT500,0002EBITEBIT250,000EBIT250,000500,000EBIT250,000250,000EBIT500,000EBIT16-10Example:HomemadeLeverageandROE•CurrentCapitalStructure•Investorborrows$500anduses$500ofherowntobuy100sharesofstock•Payoffs:–Recession:100(0.60)-.1(500)=$10–Expected:100(1.30)-.1(500)=$80–Expansion:100(2.00)-.1(500)=$150•Mirrorsthepayoffsfrompurchasing50sharesofthefirmundertheproposedcapitalstructure•ProposedCapitalStructure•Investorbuys$250worthofstock(25shares)and$250worthofbondspaying10%.•Payoffs:–Recession:25(.20)+.1(250)=$30–Expected:25(1.60)+.1(250)=$65–Expansion:25(3.00)+.1(250)=$100•Mirrorsthepayoffsfrompurchasing50sharesunderthecurrentcapitalstructure16-11CapitalStructureTheory•ModiglianiandMiller(M&M)TheoryofCapitalStructure–PropositionI–firmvalue–PropositionII–WACC•Thevalueofthefirmisdeterminedbythecashflowstothefirmandtheriskoftheassets•Changingfirmvalue–Changetheriskofthecashflows–Changethecashflows16-12CapitalStructureTheoryUnderThreeSpecialCases•CaseI–Assumptions–Nocorporateorpersonaltaxes–Nobankruptcycosts•CaseII–Assumptions–Corporatetaxes,butnopersonaltaxes–Nobankruptcycosts•CaseIII–Assumptions–Corporatetaxes,butnopersonaltaxes–Bankruptcycosts16-13CaseI–PropositionsIandII•PropositionI–ThevalueofthefirmisNOTaffectedbychangesinthecapitalstructure–Thecashflowsofthefirmdonotchange;therefore,valuedoesn’tchange•PropositionII–TheWACCofthefirmisNOTaffectedbycapitalstructure16-14CaseI-Equations•WACC=RA=(E/V)RE+(D/V)RD•RE=RA+(RA–RD)(D/E)–RAisthe“cost”ofthefirm’sbusinessrisk,i.e.,theriskofthefirm’sassets–(RA–RD)(D/E)isthe“cost”ofthefirm’sfinancialrisk,i.e.,theadditionalreturnrequiredbystockholderstocompensatefortheriskofleverage16-15Figure16.316-16CaseI-Example•Data–Requiredreturnonassets=16%;costofdebt=10%;percentofdebt=45%•Whatisthecostofequity?–RE=16+(16-10)(.45/.55)=20.91%•Supposeinsteadthatthecostofequityis25%,whatisthedebt-to-equityratio?–25=16+(16-10)(D/E)–D/E=(25-16)/(16-10)=1.5•Basedonthisinformation,whatisthepercentofequityinthefirm?–E/V=1/2.5=40%16-17TheCAPM,theSMLandPropositionII•Howdoesfinancialleverageaffectsystematicrisk?•CAPM:RA=Rf+A(RM–Rf)–WhereAisthefirm’sassetbetaandmeasuresthesystematicriskofthefirm’sassets•PropositionII–ReplaceRAwiththeCAPMandassumethatthedebtisriskless(RD=Rf)–RE=Rf+A(1+D/E)(RM–Rf)16-18BusinessRiskandFinancialRisk•RE=Rf+A(1+D/E)(RM–Rf)•CAPM:RE=Rf+E(RM–Rf)–E=A(1+D/E)•Therefore,thesystematicriskofthestockdependson:–Systematicriskoftheassets,A,(Businessrisk)–Levelofleverage,D/E,(Financialrisk)16-19CaseII–CashFlow•Interestistaxdeductible•Therefore,whenafirmaddsdebt,itreducestaxes,allelseequal•Thereductionintaxesincreasesthecashflowofthefirm•Howshouldanincreaseincashflowsaffectthevalu