公司理財Chap011-課件

CostofCapital11公司理財Chap011-PPTCostofCapital11公司理財Chap011-P1Chapter11-Outline CostofCapitalCostofDebtCostofPreferredStockCostofCommonEquity:CommonStockRetainedEarningsOptimumCapitalStructureMarginalCostofCapitalTheSecurityofMarketLineSummaryandConclusionsPPT11-2公司理財Chap011-PPT2Chapter11-Outline CostCostofCapital ThecostofcapitalrepresentstheoverallcostoffuturefinancingtothefirmThecostofcapitalisnormallytherelevantdiscountratetouseinanalyzinganinvestmentItrepresentstheminimalacceptablereturnfromtheinvestmentIfyourcostoffundsis10%,youmustearnatleast10%onyourinvestmentstobreakeven!Thecostofcapitalisaweightedaverageofthevarioussourcesoffundsintheformofdebtandequity

WACC=WeightedAverageCostofCapital

PPT11-3公司理財Chap011-PPT3CostofCapital ThecostoStepsinmeasuringafirm’scostofcapital1.Computethecostofeachsourceofcapital.2.Assignweightstoeachsource.Conversionofhistoricalcostofcapitalstructuretomarketvaluesmayberequired.3.Computetheweightedaverageofthecomponentcosts.公司理財Chap011-PPT4Stepsinmeasuringafirm’scoCostofCapital–BakerCorporation公司理財Chap011-PPT5CostofCapital–BakerCorporCostofDebtMeasuredbyinterestrate,oryield,paidtobondholdersExample:$1,000bondpaying$100annualinterest–10%yieldCalculationiscomplexdiscountrateorpremiumfromparvaluebondsTodeterminethecostofanewdebtinthemarketplace:Thefirmwillcomputetheyieldonitscurrentlyoutstandingdebt公司理財Chap011-PPT6CostofDebtMeasuredbyintereApproximateYieldtoMaturity(Y')

Annualinterestpayment+Numberofyearstomaturity0.6(Priceofthebond)+0.4(Principalpayment)Assuming:Y'

=$101.50+20.6($940)+.4($1,000)

=$101.50+20$564+$400

Y’=$101.50+3=$104.50=10.84%$964$964Principalpayment–Priceofthebond$1,000-$94060公司理財Chap011-PPT7ApproximateYieldtoMaturityTaxandflotationcostconsideration

Market-determinedyieldsonvariousfinancialinstrumentswillequalthecostofthoseinstrumentstothefirmwithadjustmenttaxandflotationcostconsideration公司理財Chap011-PPT8TaxandflotationcostconsideAdjustingYield

forTaxConsiderationsYieldtomaturityindicateshowmuchthefirmhastopayonabefore-taxbasisInterestpaymentonadebtisatax-deductibleexpenseDuetothis,thetruecostislessthanthestatedcost公司理財Chap011-PPT9AdjustingYield

forTaxConsiAdjustingYield

forTaxConsiderations(cont’d)Theafter-taxcostofdebtiscalculatedasshownbelow:Assuming:公司理財Chap011-PPT10AdjustingYield

forTaxConsiYieldofPreferredStock Preferredstock:hasafixeddividend(similartodebt)hasnomaturitydatedividendsarenottaxdeductibleandareexpectedtobeperpetualorinfiniteYieldofpreferredstock=annualdividend priceofstockYieldofnewpreferredstock=annualdividend price-flotationcostsFlotationcosts:sellinganddistributioncosts(suchassalescommissions)forthenewsecuritiesPPT11-6公司理財Chap011-PPT11YieldofPreferredStock PrCostofPreferredStock(cont’d)Thecostofpreferredstockisasfollows:Where,=Costofpreferredstock;=Annualdividendonpreferredstock;=Priceofpreferredstock;F=Floatation,orsellingcostAssumingannualdividendas$10.50,preferredstockis$100,andflotation,orsellingcostis$4.Effectivecostis:=$10.50=$10.50=10.94%$100-$4$96公司理財Chap011-PPT12CostofPreferredStock(cont’CostofCommonEquity–

ValuationApproachIndeterminingthecostofcommonstock,thefirmmustbesensitivetopricingandperformancedemandsofcurrentandfuturestockholdersDividendvaluationmodel:Where,=Priceofthestocktoday;=Dividendattheendoftheyear(orperiod);=Requiredrateofreturn;g=ConstantgrowthrateindividendsAssuming=$2;=$40andg=7%,equals12percent=$2+7%=5%+7%=12%$40公司理財Chap011-PPT13CostofCommonEquity–

ValuaAlternateCalculationoftheRequiredReturnonCommonStockCapitalassetpricingmodel(CAPM)Where:=Requiredreturnoncommonstock;=Risk-freerateofreturn,usuallythecurrentrateonTreasurybillsecurities;=Betacoefficient(measuresthehistoricalvolatilityofanindividualstock’sreturnrelativetoastockmarketindex;=returninthemarketasmeasuredbyanapproximateindexAssuming=5.5%,=12%,=1.0,wouldbe:=5.5%+1.0(12%-5.5%)=5.5%+1.0(6.5%)=5.5%+6.5%=12%公司理財Chap011-PPT14AlternateCalculationoftheRCostofRetainedEarningsSourcesofcapitalforcommonstockequity:Purchaserofthenewshares–externalsourceRetainedearnings–internalsourceRepresentthepresentandpastearningsofthefirmminuspreviouslydistributeddividendsBelongtothecurrentstockholders–maybepaidintheformofdividendsorreinvestedinthefirmReinvestmentsrepresentasourceofequitycapitalsuppliedbythecurrentstockholdersAnopportunitycostisinvolved公司理財Chap011-PPT15CostofRetainedEarningsSourcCostofRetainedEarnings(cont’d)Thecostofretainedearningsisequivalenttotherateofreturnonthefirm’scommoncostrepresentingtheopportunitycostrepresentsboththerequiredrateofreturnoncommonstock,andthecostofequityintheformofretainedearningsForeaseofreference,=Costofcommonequityintheformofretainedearnings=Dividendattheendofthefirstyear,$2=Priceofstocktoday,$40g=Constantgrowthrateindividends,7%=$2+7%=5%+7%=12%$40公司理財Chap011-PPT16CostofRetainedEarnings(conCostofNewCommonStockAslightlyhigherreturnthan,representingtherequiredrateofreturnofpresentstockholders,isexpectedNeededtocoverthedistributioncostsofthenewsecurities

Commonstock

Newcommonstock公司理財Chap011-PPT17CostofNewCommonStockAsligCostofNewCommonStock(cont’d)Assuming=$2,=$40,F(Flotationorsellingcosts)=$4andg=7%;

=$2+7%$40-$4=$2+7%$36=5.6%+7%=12.6%公司理財Chap011-PPT18CostofNewCommonStock(contOverviewofCommonStockCosts公司理財Chap011-PPT19OverviewofCommonStockCostsOptimumCapitalStructure Theoptimum(best)situationisassociatedwiththeminimumoverallcostofcapital:OptimumcapitalstructuremeansthelowestWACCUsuallyoccurswith40-70%debtinafirm’scapitalstructureWACCisalsoreferredtoastherequiredrateofreturnorthediscountrateBaseduponthemarketvalueratherthanthebookvalueofthefirm’sdebtandequityPPT11-8公司理財Chap011-PPT20OptimumCapitalStructure TOptimalCapitalStructure–WeightingCosts(cont’d)Assessmentofdifferentplans(nextslide):FirmisabletoinitiallyreduceweightedaveragecostofcapitalwithdebtfinancingBeyondPlanB,continueduseofdebtbecomesunattractiveandgreatlyincreasescostsofsourcesoffinancing公司理財Chap011-PPT21OptimalCapitalStructure–WeOptimalCapitalStructure–WeightingCosts(cont’d)

Cost(After-tax)WeightsWeightedCostFinancialPlanA:Debt…………6.5%20%1.3%Equity……….12.080

9.610.9%FinancialPlanB:Debt…………7.0%40%2.8%Equity……….12.5607.5

10.3%FinancialPlanC:Debt…………9.0%60%5.4%Equity……….15.0406.011.4%公司理財Chap011-PPT22OptimalCapitalStructure–WeCostofCapitalCurve公司理財Chap011-PPT23CostofCapitalCurve公司理財Chap0DebtasaPercentageofTotalAssets(2006)公司理財Chap011-PPT24DebtasaPercentageofTotalCapitalacquisitionandinvestmentdecisionmakingThediscountrateusedinevaluatingcapitalprojectsshouldbetheweightedaveragecostofcapital.Ifthecostofcapitalisearnedonallprojects,theresidualclaimantsoftheearningsstream,theowners,willreceivetheirrequiredrateofreturn.Iftheoverallreturnofthefirmislessthanthecostofcapital,theownerswillreceivelessthantheirdesiredrateofreturnbecauseprovidersofdebtcapitalmustbepaid.Formostfirms,thecostofcapitalisfairlyconstantwithinareasonablerangeofdebt-equitymixes.Changesinmoneyandcapitalmarketconditions(supplyanddemandformoney),however,causethecostofcapitalforallfirmstovaryupwardanddownwardovertime.公司理財Chap011-PPT25CapitalacquisitionandinvestCostofcapitalovertimeCostofcapital(Ka)x y Debt-equitymix(percent)KatKat+1Kat+2公司理財Chap011-PPT26CostofcapitalovertimeCostInvestmentProjectsAvailable

totheBakerCorporation公司理財Chap011-PPT27InvestmentProjectsAvailable

CostofcapitalandinvestmentprojectsfortheBakerCorporation16.014.012.010.08.06.04.02.00.0Percent101519 50 39 Amountofcapital($millions)10.41%708595 WeightedaveragecostofcapitalKaABCDEFGH-

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公司理財Chap011-PPT28CostofcapitalandinvestmentTheMarginalCostofCapitalThemarketmaydemandahighercostofcapitalforeachamountoffundrequiredifalargeamountoffinancingisrequiredEquity(ownership)capitalisrepresentedbyretainedearningsRetainedearningscannotgrowindefinitelyasthefirm’scapitalneedstoexpandRetainedearningsislimitedtotheamountofpastandpresentearningsthatcanberedeployedintoinvestments公司理財Chap011-PPT29TheMarginalCostofCapitalThTheMarginalCostofCapital(cont’d)Assumptions:60%istheamountofequitycapitalafirmmustmaintaintokeepabalancebetweenfixedincomesecuritiesandownershipinterestBakerCorporationhas$23.40millionofretainedearningavailableforinvestmentThereisadequateretainedearningtosupportthecapitalstructureasshownbelow:Assuming:X=Retainedearnings;PercentofretainedearningsinthecapitalstructureWhereXrepresentsthesizeofthecapitalstructurethatretainedearningswillsupportX=$23.40million=$39million.60公司理財Chap011-PPT30TheMarginalCostofCapital(CostsofCapitalfor

DifferentAmountsofFinancing公司理財Chap011-PPT31CostsofCapitalfor

DifferenIncreasingMarginalCostofCapitalBothandrepresentthecostofcapitalThemcsubscriptafterKindicatestheincreaseincostofcapitalIncreaseisbecausecommonequityisnowintheformofnewcommonstockratherthanretainedearningsTheaftertaxcostofthenewcommonstockismoreexpensivethanretainedearningsbecauseofflotationcosts公司理財Chap011-PPT32IncreasingMarginalCostofCaIncreasingMarginalCostofCapital(cont’d)Equationforthecostofnewcommonstock:

=$2+7%=$2+7%=5.6%+7%=12.6%$40-$4$36The$50millionfigurecanbederivedthus:Z=Amountoflower-costdebt;PercentofdebtinthecapitalstructureZ=$15million=$50million.30WhereZrepresentsthesizeofthecapitalstructureinwhichlower-costdebtcanbeused公司理財Chap011-PPT33IncreasingMarginalCostofCaCostofCapitalfor

IncreasingAmountsofFinancing公司理財Chap011-PPT34CostofCapitalfor

IncreasinChangesinthe

MarginalCostsofCapital公司理財Chap011-PPT35Changesinthe

MarginalCostsPPT11-16MarginalcostofcapitalandBakerCorporationinvestmentalternatives16.014.012.010.08.06.04.02.00.0Percent101519 50 39 Amountofcapital($millions)11.23%708595 MarginalcostofcapitalKmcABCDEFGH10.77%10.41%-

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公司理財Chap011-PPT36PPT11-16MarginalcostofcapiCostofComponents

intheCapitalStructure公司理財Chap011-PPT37CostofComponents

intheCapBasicformoftheCAPMThebasicformoftheCAPMisalinearrelationshipbetweenreturnsonindividualstocksandthemarketovertime.Usingleastsquaresregressionanalysis,thereturn

Kj=α+βRm+eWhere:Kj=returnonindividualcommonstockofcompanyα=Alpha,theinterceptonthey-axisβ=Beta,thecoefficientRm=Returnonthestockmarkete=Errortermoftheregressionequation公司理財Chap011-PPT38BasicformoftheCAPMThebasi

RateofReturnonStock

Year PAI Market

1............ 12.0% 10.0% 2 ............ 16.0 18.0 3............ 20.0 16.0 4 ............ 16.0 10.0 5 ............ 6.0 8.0 Meanreturn 14.0% 12.4% Standarddeviation 4.73% 3.87% PPT11-18Table11A-1

PerformanceofPAIandthemarket公司理財Chap011-PPT39 PPT11-18Table11A-1

PerformaPercent21.015.09.03.0ReturnonPAIcommonstockKj3.0 9.0 15.0 21.0 Rm

Kj=

jRm+ej=2.8+.9(Rm)+ejReturnonthemarketRm

(x)2.8

.9 Beta=

j=Slopeoftheline (5) (1) (4) (3) (2) (y)LinearregressionofreturnsbetweenPAIandthemarket公司理財Chap011-PPT40PercentReturnonPAIcommonstYear Kj Rm1..... 12% 10%2..... 16% 18%3..... 20% 16%4..... 16% 10%5..... 6% 8% 70% 62%

KjRm

Kj

Rm

Rm2 (

Rm)2936 4,340 844 3,844

n

KjRm–

KjRm5(936)-4,340

j

n

Rm2

–(

Rm)2

5(844)-3,844

Kj–

Rm70-0.9(62)

n 5PPT11-20LinearregressionofreturnsbetweenPAIandthemarket公司理財Chap011-PPT41Year Kj RmKjRm KjRmLinearregressionofreturnsbetweenPAIandthemarketCalculatorMode:StatInput10(x,y)12Data18(x,y)16Data16(x,y)20Data10(x,y)16Data8(x,y)6Data2ndFagives2.792ndFbgives.902ndFrgives.74 Notethatthevaluesforthexaxis(Rm)areinputfirstThisisthealphacoefficientThisisthebetacoefficientThisisthecorrelationcoefficient,ameasureofhowwelltheformuladescribestherelationship.Thecloserto1.00,thebetterthefitPPT11-21公司理財Chap011-PPT42LinearregressionofreturnsbImprovedCAPM(riskpremiummodel)InvestorsexpecthigherreturnsifhigherrisksaretakenKj=Rf+β(Rm-Rf)Where:

Kj=RequiredreturnonCommonStock

Rf

=Risk-freerateofreturn

β=Betacoefficient.Thebetameasuresthehistoricalvolatilityofanindividualstock'sreturnrelativetoastockmarketindex.Abetagreaterthan1indicatesgreatervolatility(pricemovements)thanthemarket,whilethereversewouldbetrueforabetalessthan1.Rm-Rf_=Premiumorexcessreturnofthemarketversustherisk-freerate.

β(Rm-Rf)=Expectreturnabovetherisk-freerateforthestockofcompanyj,giventhelevelofrisk.公司理財Chap011-PPT43ImprovedCAPM(riskpremiummThesecuritymarketline(SML)K.5

RequiredratesofreturnPercent0.5 1.0 1.5 2.0 SML=Rf+

(Rm–Rf)Beta(risk)6.5%marketriskpremium20.018.016.014.012.010.08.05.5K2K1Rf公司理財Chap011-PPT44Thesecuritymarketline(SMLRequiredratesofreturn(percent)0.5 1.0 1.5 2.0 20.018.016.014.012.010.07.55.5Rf1Rf0SML1Beta(risk)Rfincreased2%SML0Thesecurity