財務管理英文課件：C16Capital Structure Determination

1、17.1 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. 17.2 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. 1.Define “

2、capital structure.” 2.Explain the net operating income (NOI) approach to capital structure and valuation of a firm; and, calculate a firms value using this approach. 3.Explain the traditional approach to capital structure and the valuation of a firm. 4.Discuss the relationship between financial leve

3、rage and the cost of capital as originally set forth by Modigliani and Miller (M&M) and evaluate their arguments. 5.Describe various market imperfections and other real world factors that tend to dilute M&Ms original position. 6.Present a number of reasonable arguments for believing that an optimal

4、capital structure exists in theory. 7.Explain how financial structure changes can be used for financial signaling purposes, and give some examples. 17.3 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. A Conce

5、ptual Look The Total-Value Principle Presence of Market Imperfections and Incentive Issues The Effect of Taxes Taxes and Market Imperfections Combined Financial Signaling 17.4 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Greg

6、ory Kuhlemeyer. Concerned with the effect of capital market decisions on security prices. Assume: (1) investment and asset management decisions are held constant and (2) consider only debt-versus-equity financing. 17.5 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pear

7、son Education Limited 2009. Created by Gregory Kuhlemeyer. Annual interest on debt Market value of debt I B = Assumptions: Interest paid each and every year Bond life is infinite Results in the valuation of a perpetual bond No taxes (Note: allows us to focus on just capital structure issues.) 17.6 V

8、an Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. E S = Assumptions: Earnings are not expected to grow 100% dividend payout Results in the valuation of a perpetuity Appropriate in this case for illustrating the

9、theory of the firm E S 17.7 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. O V = Net operating income Total market value of the firm Assumptions: V = B + S = total market value of the firm O = I + E = net op

10、erating income = interest paid plus earnings available to common shareholders O V 17.8 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. The discount rate used to determine the present value of a stream of expe

11、cted cash flows. B B + S S B + S =+ What happens to , , and when leverage, B/S, increases? 17.9 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. Assume: Net operating income equals $1,350 Market value of debt

12、is $1,800 at 10% interest Overall capitalization rate is 15% 17.10 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. = O / ko= / 0.15 = Market value= V B= of equity= = E / S *= ( ) / = * B / S = $1,800 / $7,200

13、 = 0.25 17.11 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. = O / ko= / 0.15 = Market value= V B= of equity= = E / S *= ( - ) / = * B / S = $3,000 / $6,000 = 0.50 17.12 Van Horne and Wachowicz, Fundamentals

14、 of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. B / S 0.00 0.25 0.50 1.00 2.00 Calculated in slides 9 and 10 17.13 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Ku

15、hlemeyer. 0 0.25 0.50 0.75 1.0 1.25 1.50 1.75 2.0 Financial Leverage (B/S) 0.25 0.20 0.05 0 Capital Costs (%) 17.14 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. Critical assumption is ko remains constant.

16、An increase in cheaper debt funds is exactly offset by an increase in the required rate of return on equity. As long as ki is constant, ke is a linear function of the debt-to-equity ratio. Thus, there is . 17.15 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Edu

17、cation Limited 2009. Created by Gregory Kuhlemeyer. The capital structure that minimizes the firms cost of capital and thereby maximizes the value of the firm. A theory of capital structure in which there exists an and where management can increase the total value of the firm through the judicious u

18、se of financial leverage. 17.16 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. Financial Leverage (B / S) 0.25 0.20 0.05 0 Capital Costs (%) 17.17 Van Horne and Wachowicz, Fundamentals of Financial Managemen

19、t, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. The cost of capital is dependent on the capital structure of the firm. Initially, low-cost debt is not rising and replaces more expensive equity financing and ko declines. Then, increasing financial leverage and the asso

20、ciated increase in ke and ki more than offsets the benefits of lower cost debt financing. Thus, there is where ko is at its lowest point. This is also the point where the firms total value will be the largest (discounting at ko). 17.18 Van Horne and Wachowicz, Fundamentals of Financial Management, 1

21、3th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. Advocate that the relationship between financial leverage and the cost of capital is explained by the NOI approach. Provide behavioral justification for a constant ko over the entire range of financial leverage possibilities

22、. Total risk for all security holders of the firm is not altered by the capital structure. Therefore, the total value of the firm is not altered by the firms financing mix. 17.19 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by G

23、regory Kuhlemeyer. Market value of debt ($65M) Market value of equity ($35M) Total firm market value ($100M) M&M assume an absence of taxes and market imperfections. Investors can substitute personal for corporate financial leverage. Market value of debt ($35M) Market value of equity ($65M) Total fi

24、rm market value ($100M) Total market value is not altered by the capital structure (the total size of the pies are the same). 17.20 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. Two firms that are alike in

25、every respect capital structure have the same market value. Otherwise, is possible. 17.21 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. Consider two firms that are identical in every respect : Company NL no

26、 financial leverage Company L $30,000 of 12% debt Market value of debt for Company L equals its par value Required return on equity Company NL is 15% Company L is 16% NOI for each firm is $10,000 17.22 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Lim

27、ited 2009. Created by Gregory Kuhlemeyer. = = O I = - $0 = = E / ke = / 0 .15 = = + $0 = = Debt-to-equity ratio= 0 17.23 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. = = O I = $3,600 = = E / ke = / 0.16 =

28、= + $30,000 = = Debt-to-equity ratio= 0.75 17.24 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. Assume you own 1% of the stock of Company L (equity value = $400). You should: 1. Sell the stock in Company L f

29、or $400. 2. Borrow $300 at 12% interest (equals 1% of debt for Company L). 3. Buy 1% of the stock in Company NL for $666.67. This leaves you with $33.33 for other investments ($400 + $300 - $666.67). 17.25 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education

30、 Limited 2009. Created by Gregory Kuhlemeyer. $400 16% = $64 Return on investment after the transaction $666.67 16% = $300 12% = ( ) AND . This reduces the required net investment to $366.67 to earn $64. 17.26 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Educa

31、tion Limited 2009. Created by Gregory Kuhlemeyer. The equity share price in Company NL rises based on increased share demand. The equity share price in Company L falls based on selling pressures. Arbitrage continues until total firm values are identical for companies NL and L. The investor uses “per

32、sonal” rather than corporate financial leverage. 17.27 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. Agency costs (Slide 1731) Debt and the incentive to manage efficiently Institutional restrictions Transac

33、tion costs Bankruptcy costs (Slide 1730) 17.28 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. Financial Leverage (B / S) Required Rate of Return on Equity (ke) 17.29 Van Horne and Wachowicz, Fundamentals of

34、Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. Monitoring includes bonding of agents, auditing financial statements, and explicitly restricting management decisions or actions. Costs are borne by shareholders (Jensen & Meckling). Monitoring costs,

35、like bankruptcy costs, tend to rise at an increasing rate with financial leverage. 17.30 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. Consider two identical firms : Company ND no debt, 16% required return

36、Company D $5,000 of 12% debt Corporate tax rate is 40% for each company NOI for each firm is $10,000 The judicious use of provides a favorable impact on a companys total valuation. 17.31 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Crea

37、ted by Gregory Kuhlemeyer. = = I = $0 = ( )= = (1 ) = (1 ) = = + I = + 0 = (Note: has no debt) 17.32 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. = = I = $600 = ( )= = (1 ) = (1 ) = = + I = + $600 = * (Not

38、e: has some debt) * $240 annual tax-shield benefit of debt (i.e., $1,440 - $1,200) 17.33 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. * = ( ) ( ) ( ) = ( ) ( ) * Permanent debt, so treated as a perpetuity

39、* Alternatively, $240 annual tax shield / 0.12 = $2,000, where $240=$600 Interest expense 0.40 tax rate. = () () = * 17.34 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. = $1,200 / 0.16 = * = + = = + * Assum

40、ing zero growth and 100% dividend payout 17.35 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. The greater the financial leverage, the lower the cost of capital of the firm. The adjusted M&M proposition sugge

41、sts an optimal strategy is to . Yet, this is consistent with actual behavior. The greater the amount of debt, the greater the tax- shield benefits and the greater the value of the firm. 17.36 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009.

42、 Created by Gregory Kuhlemeyer. Personal taxes reduce the corporate tax advantage associated with debt. Only a small portion of the explanation why corporate debt usage is not near 100%. Uncertainty increases the possibility of bankruptcy and liquidation, which reduces the value of the tax shield. 1

43、7.37 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. As financial leverage increases, increase as do . = + - 17.38 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. Financial Leve