财务管理cha6课件

1、mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.0cost of capitalchapter 12mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.1key concepts and skillsnknow how to determine a firms cost of equity capitalnknow how to determ

2、ine a firms cost of debtnknow how to determine a firms overall cost of capitalnunderstand pitfalls of overall cost of capital and how to manage themmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.2chapter outlinenthe cost of capital: some preliminariesnthe co

3、st of equitynthe costs of debt and preferred stocknthe weighted average cost of capitalndivisional and project costs of capitalmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.3why cost of capital is importantnwe know that the return earned on assets depends o

4、n the risk of those assetsnthe return to an investor is the same as the cost to the companynour cost of capital provides us with an indication of how the market views the risk of our assetsnknowing our cost of capital can also help us determine our required return for capital budgeting projectsmcgra

5、w-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.4required returnnthe required return is the same as the appropriate discount rate and is based on the risk of the cash flowsnwe need to know the required return for an investment before we can compute the npv and mak

6、e a decision about whether or not to take the investmentnwe need to earn at least the required return to compensate our investors for the financing they have providedmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.5cost of equitynthe cost of equity is the ret

7、urn required by equity investors given the risk of the cash flows from the firmnthere are two major methods for determining the cost of equityndividend growth modelnsml or capmmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.6the dividend growth model approach

8、nstart with the dividend growth model formula and rearrange to solve for regpdrgrdpee0110mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.7dividend growth model examplensuppose that your company is expected to pay a dividend of $1.50 per share next year. there

9、 has been a steady growth in dividends of 5.1% per year and the market expects that to continue. the current price is $25. what is the cost of equity?111.051.2550. 1ermcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.8example: estimating the dividend growth rat

10、enone method for estimating the growth rate is to use the historical averagenyeardividendpercent changen19951.23n19961.30n19971.36n19981.43n19991.50(1.30 1.23) / 1.23 = 5.7%(1.36 1.30) / 1.30 = 4.6%(1.43 1.36) / 1.36 = 5.1%(1.50 1.43) / 1.43 = 4.9%average = (5.7 + 4.6 + 5.1 + 4.9) / 4 = 5.1%mcgraw-h

11、ill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.9advantages and disadvantages of dividend growth modelnadvantage easy to understand and usendisadvantagesnonly applicable to companies currently paying dividendsnnot applicable if dividends arent growing at a reasonably

12、 constant ratenextremely sensitive to the estimated growth rate an increase in g of 1% increases the cost of equity by 1%ndoes not explicitly consider riskmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.10the sml approachnuse the following information to comp

13、ute our cost of equitynrisk-free rate, rfnmarket risk premium, e(rm) rfnsystematic risk of asset, )(fmeferrerrmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.11example - smlnsuppose your company has an equity beta of .58 and the current risk-free rate is 6.1%

14、. if the expected market risk premium is 8.6%, what is your cost of equity capital?nre = 6.1 + .58(8.6) = 11.1%nsince we came up with similar numbers using both the dividend growth model and the sml approach, we should feel pretty good about our estimatemcgraw-hill 2004 the mcgraw-hill companies, in

15、c. all rights reserved.mcgraw-hill/irwin12.12advantages and disadvantages of smlnadvantagesnexplicitly adjusts for systematic risknapplicable to all companies, as long as we can compute betandisadvantagesnhave to estimate the expected market risk premium, which does vary over timenhave to estimate b

16、eta, which also varies over timenwe are relying on the past to predict the future, which is not always reliablemcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.13example cost of equitynsuppose our company has a beta of 1.5. the market risk premium is expected

17、to be 9% and the current risk-free rate is 6%. we have used analysts estimates to determine that the market believes our dividends will grow at 6% per year and our last dividend was $2. our stock is currently selling for $15.65. what is our cost of equity?nusing sml: re = 6% + 1.5(9%) = 19.5%nusing

18、dgm: re = 2(1.06) / 15.65 + .06 = 19.55%mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.14cost of debtnthe cost of debt is the required return on our companys debtnwe usually focus on the cost of long-term debt or bondsnthe required return is best estimated b

19、y computing the yield-to-maturity on the existing debtnwe may also use estimates of current rates based on the bond rating we expect when we issue new debtnthe cost of debt is not the coupon ratemcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.15cost of debt e

20、xamplensuppose we have a bond issue currently outstanding that has 25 years left to maturity. the coupon rate is 9% and coupons are paid semiannually. the bond is currently selling for $908.72 per $1000 bond. what is the cost of debt?nn = 50; pmt = 45; fv = 1000; pv = -908.75; cpt i/y = 5%; ytm = 5(

21、2) = 10%mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.16cost of preferred stocknremindersnpreferred generally pays a constant dividend every periodndividends are expected to be paid every period forevernpreferred stock is an annuity, so we take the annuity

22、formula, rearrange and solve for rpnrp = d / p0mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.17cost of preferred stock - examplenyour company has preferred stock that has an annual dividend of $3. if the current price is $25, what is the cost of preferred s

23、tock?nrp = 3 / 25 = 12%mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.18weighted average cost of capitalnwe can use the individual costs of capital that we have computed to get our “average” cost of capital for the firm.nthis “average” is the required return

24、 on our assets, based on the markets perception of the risk of those assetsnthe weights are determined by how much of each type of financing that we usemcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.19capital structure weightsnnotationne = market value of eq

25、uity = # outstanding shares times price per sharend = market value of debt = # outstanding bonds times bond pricenv = market value of the firm = d + enweightsnwe = e/v = percent financed with equitynwd = d/v = percent financed with debtmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights rese

26、rved.mcgraw-hill/irwin12.20example capital structure weightsnsuppose you have a market value of equity equal to $500 million and a market value of debt = $475 million.nwhat are the capital structure weights?nv = 500 million + 475 million = 975 millionnwe = e/d = 500 / 975 = .5128 = 51.28%nwd = d/v =

27、 475 / 975 = .4872 = 48.72%mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.21taxes and the waccnwe are concerned with after-tax cash flows, so we need to consider the effect of taxes on the various costs of capitalninterest expense reduces our tax liabilitynt

28、his reduction in taxes reduces our cost of debtnafter-tax cost of debt = rd(1-tc)ndividends are not tax deductible, so there is no tax impact on the cost of equitynwacc = were + wdrd(1-tc)mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.22extended example wacc

29、 - inequity informationn50 million sharesn$80 per sharenbeta = 1.15nmarket risk premium = 9%nrisk-free rate = 5%ndebt informationn$1 billion in outstanding debt (face value)ncurrent quote = 110ncoupon rate = 9%, semiannual couponsn15 years to maturityntax rate = 40%mcgraw-hill 2004 the mcgraw-hill c

30、ompanies, inc. all rights reserved.mcgraw-hill/irwin12.23extended example wacc - iinwhat is the cost of equity?nre = 5 + 1.15(9) = 15.35%nwhat is the cost of debt?nn = 30; pv = -1100; pmt = 45; fv = 1000; cpt i/y = 3.9268nrd = 3.927(2) = 7.854%nwhat is the after-tax cost of debt?nrd(1-tc) = 7.854(1-

31、.4) = 4.712%mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.24extended example wacc - iiinwhat are the capital structure weights?ne = 50 million (80) = 4 billionnd = 1 billion (1.10) = 1.1 billionnv = 4 + 1.1 = 5.1 billionnwe = e/v = 4 / 5.1 = .7843nwd = d/v

32、= 1.1 / 5.1 = .2157nwhat is the wacc?nwacc = .7843(15.35%) + .2157(4.712%) = 13.06%mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.25eastman chemical inclick on the web surfer to go to yahoo finance to get information on eastman chemical (emn)nunder profile,

33、you can find the following informationn# shares outstandingnbook value per sharenprice per sharenbetanunder research, you can find analysts estimates of earnings growth (use as a proxy for dividend growth)nthe bonds section at yahoo finance can provide the t-bill ratenuse this information, along wit

34、h the capm and dgm to estimate the cost of equitymcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.26eastman chemical iingo to bondsonline to get market information on eastman chemicals bond issuesnenter eastman ch to find the bond informationnnote that you may

35、 not be able to find information on all bond issues due to the illiquidity of the bond marketngo to the sec site to get book market information from the firms most recent 10qmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.27eastman chemical iiinfind the weigh

36、ted average cost of the debtnuse market values if you were able to get the informationnuse the book values if market information was not availablenthey are often very closencompute the waccnuse market value weights if availablemcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgr

37、aw-hill/irwin12.28table 12.1mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.29divisional and project costs of capitalnusing the wacc as our discount rate is only appropriate for projects that are the same risk as the firms current operationsnif we are looking

38、 at a project that is not the same risk as the firm, then we need to determine the appropriate discount rate for that projectndivisions also often require separatediscount ratesmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.30using wacc for all projects - ex

39、amplenwhat would happen if we use the wacc for all projects regardless of risk?nassume the wacc = 15%projectrequired returnirra20%17%b15%18%c10%12%mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin12.31pure play approachnfind one or more companies that specialize in the product or service that we are consideringncompute the beta for each companyntake an averagenuse that beta along with the capm to find the appropriate retu