ch16Multinational Capital Structure and Cost of Capital(跨國公司,Kirt C. Butler)

1、Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e16-116.1 Capital Structure and the Cost of Capital16.2 Project Valuation and the Cost of Capital16.3 The Cost of Capital on Multinational Operations16.4 Sources of Funds for Multinational Operations16.5 The International Evid

2、ence on Capital Structure16.6 SummaryKirt C. Butler, Multinational Finance, South-Western College Publishing, 3e16-2Capital structure - the proportion of long-term debt and equity capital and the particular forms of capital chosen to finance the assets of the firm Kirt C. Butler, Multinational Finan

3、ce, South-Western College Publishing, 3e16-3Management must choose - the proportions of debt and equity- the currency of denomination- fixed or floating rate interest payments- indenture provisions- conversion features- callability- seniority- maturityKirt C. Butler, Multinational Finance, South-Wes

4、tern College Publishing, 3e16-4 M N C sM N C s cost of capi talcost of capi tal Investm ent opportuni ty setInvestm ent opportuni ty set D om esti c fi rm sD om esti c fi rm s cost of capi talcost of capi tal D om esti c fi rmD om esti c fi rm C api tal budgetC api tal budget % % M N CM N C Kirt C.

5、Butler, Multinational Finance, South-Western College Publishing, 3e16-5 iW A C C = (B / V)iB(1-TC)+(S/ V)iS A fter-tax cost of debt capi tal iB(1-TC) C ost of equi ty capi tal iS O pti m al range D ebt/ equi ty C ost of capi tal (% ) Kirt C. Butler, Multinational Finance, South-Western College Publi

6、shing, 3e16-6 D ebt/equi ty rati o C ost of capi tal (% ) D om esti c iS M M N N C C i iS S M M N N C C i iW W A A C C C C M M N N C C i iB B( (1 1- -T TC C) ) D om esti c iW A C C D om esti c iB(1-TC) Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e16-7Far better an appro

7、ximate answer to the right question, which is often vague, than an exact answer to a wrong question, which can always be made precise.John W. Tukey Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e16-8Frictionless marketsEqual access to market pricesRational investorsEqual

8、access to costless informationKirt C. Butler, Multinational Finance, South-Western College Publishing, 3e16-9With equal access to perfect financial markets, individuals can replicate any financial action that the firm can take.This leads to Modigliani-Millers famous irrelevance proposition:If financ

9、ial markets are perfect, then corporate financial policy is irrelevant.Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e16-10V = St ECFt / (1+i)tIf financial policy is to increase value, then it must either - increase expected future cash flows- decrease the discount rate i

10、n a way that cannot be replicated by individual investors.Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e16-11In integrated financial markets, - real after-tax rates of return on equivalent assets are equalKirt C. Butler, Multinational Finance, South-Western College Publi

11、shing, 3e16-12- prohibitive transactions costs- different legal and political systems- regulatory interference (e.g., barriers to financial flows)- differential taxes- informational barriers- differential investor expectations - home asset bias(a tendency to buy financial assets from the domestic ma

12、rket)Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e16-13Approaches to project valuation- WACC = Weighted average cost of capital- APV = Adjusted present valueUse an asset-specific discount rate- Nominal (real) cash flows should be discounted at nominal (real) discount ra

13、te- Domestic (foreign) currency cash flows should be discounted at a domestic (foreign) discount rateKirt C. Butler, Multinational Finance, South-Western College Publishing, 3e16-14NPV = S St ECFt / (1+iWACC)t iWACC = (B/(B+S) iB (1-TC) + (S/(B+S)iSB = the market value of corporate bonds S = the mar

14、ket value of corporate stock iB= required return on corporate bondsiS= required return on corporate stockTC= marginal corporate tax rateKirt C. Butler, Multinational Finance, South-Western College Publishing, 3e16-15APV = VU + PV(financing side effects) - initial investmentwhereVU = the value of the

15、 unlevered or all-equity projectPV(financing side effects)= value of tax shields from the use of debt, net of the expected costs of financial distressKirt C. Butler, Multinational Finance, South-Western College Publishing, 3e16-16If operating risks are diversifiable, then they are not priced by inve

16、stors and should not be reflected in capital costsIf operating risks are nondiversifiable, then they should be reflected in capital costs- Capital costs are increased if these risks are positively related to the market portfolio- Capital costs are decreased if these risks are negatively related to t

17、he market portfolioKirt C. Butler, Multinational Finance, South-Western College Publishing, 3e16-17Erb, Harvey and Viskanta find equity returns are related to country risk - Prices go up (down) following a decrease (increase) in country risk- Countries with high country risk tend to have more volati

18、le returns - Countries with high country risk tend to have lower betas (systematic risks)Erb, Harvey, & Viskanta, “Political Risk, Financial Risk and Economic Risk,” Financial Analysts Journal, 1996.Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e16-18Bekaert and Harve

19、y find financial market liberalizations tend to- Increase the correlation of emerging market and world market returns- Have little impact on emerging market return volatility- Decrease local firms capital costs by as much as 1 percentBekaert & Harvey, “Foreign Speculators and Emerging Equity Mar

20、kets,” Journal of Finance, 2000.Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e16-19International CAPM: Eri = rF + bi (rworld - rF)Globally Nested CAPM: Eri is a function of systematic country risk plus regional systematic risk not included in the world factorCountry Risk

21、 Rating Model: Eri based on country credit riskCountry-Spread Model: Adds a country-specific spread to a conventional cost of equity estimateRelative Standard Deviation Model: Countries are assigned an equity premia in proportion to their standard deviation relative to the U.S.Kirt C. Butler, Multin

22、ational Finance, South-Western College Publishing, 3e16-20The financial pecking order- Internal sources of funds are preferred- External sources of funds are accessed only after internal sources are exhausted External debt is the preferred external funding source New external equity is used only as

23、a last resortKirt C. Butler, Multinational Finance, South-Western College Publishing, 3e16-21Internal sourcesExternal sourcesMNCs home Cash flow from New debt or equity countryparent & affiliatesfinancing (perhaps in the parentsissued or guaranteed home countryby the parent firm)Foreign projects

24、Cash flow from Local debt or equity host countryexisting operationsfrom institutions orin the host countrymarkets in the hostcountryInternationalCash flow from Project finance financingother foreign Eurobonds sourcesaffiliatesEuroequity Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e16-22 Kirt C. Butler, Multinational Finance, South-Western College Publis