金融学讲义大纲及课后习题答案详解-十六章

1、CHAPTER16CAPITALSTRUCTUREObjectivesTounderstandhowafirmcancreatevaluethroughitsfinancingdecisions.Toshowhowtotakeaccountofafirmsfinancingmixinevaluatinginvestmentdecisions.OutlineInternalversusExternalFinancingEquityFinancingDebtFinancingTheIrrelevanceofCapitalStructureinaFrictionlessEnvironmentCrea

2、tingValuethroughFinancingDecisionsReducingCostsDealingwithConflictsofInterestCreatingNewOpportunitiesforStakeholdersFinancingDecisionsinPracticeHowtoEvaluateLeveredInvestmentsSummaryExternalfinancingsubjectsacorporationsinvestmentplansmoredirectlytothedisciplineofthecapitalmarketthaninternalfinancin

3、gdoes.Debtfinancinginitsbroadestsenseincludesloansanddebtsecurities,suchasbondsandmortgages,aswellasotherpromisesoffuturepaymentbythecorporation,suchasaccountspayable,leases,andpensions.Inafrictionlessfinancialenvironment,wheretherearenotaxesortransactioncosts,andcontractsarecostlesstomakeandenforce

4、,thewealthofshareholdersisthesamenomatterwhatcapitalstructurethefirmadopts.Intherealworldthereareanumberoffrictionsthatcancausecapitalstructurepolicytohaveaneffectonthewealthofshareholders.Theseincludetaxes,regulations,andconflictsofinterestbetweenthestakeholdersofthefirm.Afirmsmanagementmighttheref

5、orebeabletocreateshareholdervaluethroughitscapitalstructuredecisionsinoneofthreeways:Byreducingtaxcostsorthecostsofburdensomeregulations.Byreducingpotentialconflictsofinterestamongvariousstakeholdersinthefirm.Byprovidingstakeholderswithfinancialassetsnototherwiseavailabletothem.Therearethreealternat

6、ivemethodsusedinestimatingthenetpresentvalueofaninvestmentprojecttotakeaccountoffinancialleverage:theadjustedpresentvaluemethod,theflowstoequitymethod,andtheweightedaveragecostofcapitalmethodSolutionstoProblemsatEndofChapterDebt-EquityMix1.DividoCorporationisanall-equityfinancedfirmwithatotalmarketv

7、alueof$100million.Thecompanyholds$10millionincash-equivalentsandhas$90millioninotherassets.Thereare1,000,000sharesofDividocommonstockoutstanding,eachwithamarketpriceof$100.DividoCorporationhasdecidedtoissue$20millionofbondsandtorepurchase$20millionworthofitsstock.Whatwillbetheimpactonthepriceofitssh

8、aresandonthewealthofitsshareholders?Why?AssumethatDividosEBIThasanequalprobabilityofbeing$20million,or$12million,or$4million.Showtheimpactofthefinancialrestructuringontheprobabilitydistributionofearningspershareintheabsenceoftaxes.Whydoesthefactthattheequitybecomesriskiernotnecessarilyaffectsharehol

9、derwealth?SOLUTION:InanM&Mfrictionlessenvironment,wheretherearenotaxesandcontractsarecostlesstomakeandenforce,thewealthofshareholdersisthesamenomatterwhatcapitalstructurethefirmadopts.Insuchanenvironment,neitherthestockpricenorshareholderswealthwouldbeaffected.IntherealworldDividosmanagementmightbea

10、bletocreateshareholdervaluebyissuingdebtandrepurchasingsharesintwoways:ByreducingtaxcostsByreducingthefreecashflowavailabletomanagementandexposingitselftogreatermarketdiscipline.TheformulaforEPSwithoutdebtis:EPSl equity=EBIT1,000,000sharesTheinterestpaymentswillbe$1.2millionperyear(.06x$20million)re

11、gardlessoftherealizedvalueofEBI工Thenumberofsharesoutstandingafterexchangingdebtforequitywillbe800,000.EPSwithdebtistherefore:EP总thdebt=NetEarnings=EBIT$1.2million800,000shares800,000sharesProbabilityDistributionofDividosEBITandEPSStateoftheEconomyEBITAllequityfinancingWith$20millionofdebtEPS(1millio

12、nshares)NetEarningsEPS(800,000shares)Badbusiness$4million$4pershare$2.8million$3.50pershareNormalbusiness121210.813.50Goodbusiness202018.823.50Mean121210.813.50Standarddeviation$6.53$8.16Althoughthesharesofstockbecomeriskierwithdebtfinancing,theexpectedearningspersharegoup.Inafrictionlessfinancialen

13、vironment,theneteffectistoleavethepriceofthestockunaffected.LeasingPlentileaseandNoleasearevirtuallyidenticalcorporations.TheonlydifferencebetweenthemisthatPlentileaseleasesmostofitsplantandequipmentwhereasNoleasebuysitsplantandequipmentandfinancesitbyborrowing.Compareandcontrasttheirmarket-valuebal

14、ancesheets.SOLUTION:Market-ValueBalanceSheetsofNoleaseandPlentileaseCorporationsa.NoleaseCorporationAssetsLiabilitiesandShareholdersEquityPlantandequipmentBondsOtherassetsEquityTotalTotalb.PlentileaseCorporationAssetsLiabilitiesandShareholdersEquityPlantandequipmentLeaseOtherassetsEquityTotalTotalTh

15、emaindifferencebetweenthebondsandtheleaseasaformofdebtfinancingiswhobearstheriskassociatedwiththeresidualmarketvalueoftheleasedassetattheendofthetermofthelease.SinceNoleaseCorporationhasboughtitsequipment,itbearsthisrisk.InPlentileasescase,however,itisthelessorthatbearsthisresidual-valuerisk.Pension

16、LiabilitiesEuropensandAsiapensarevirtuallyidenticalcorporations.TheonlydifferencebetweenthemisthatEuropenshasacompletelyunfundedpensionplan,andAsiapenshasafullyfundedpensionplan.Compareandcontrasttheirmarket-valuebalancesheets.Whatdifferencedoesthefundingstatusofthepensionplanmaketothestakeholdersof

17、thesetwocorporations?SOLUTION:AssetsOperating assets: Plant,BalanceSheetsofAsiapensandEuropensCorporationsa.AsiapensBalanceSheetAssetsLiabilitiesandShareholdersEquityOperatingassets:Plant,equipment,etc.BondsPensionliabilityPensionassets:stocks,bonds,etc.ShareholdersEquityTotalTotalb.EuropensBalanceS

18、heetLiabilitiesandShareholdersEquityPensionliabilityequipment,etc.ShareholdersEquityTotalTotalAsiapenshasfundeditspensionplanbyissuingbondsandinvestingthefundsraisedinasegregatedpoolofpensionfundassets.Thesepensionassetstaketheformofadiversifiedportfolioofstocksandbondsissuedbyothercompaniesandserve

19、ascollateralforthepensionbenefitspromisedbyAsiapenstoitsemployees.InthecaseofEuropens,thereisnosegregatedpoolofpensionassets.ThepensionpromisesofEuropensarebackedbytheassetsofthecompanyitself.Therefore,theemployeesofAsiapensaremoresecureaboutreceivingtheirpromisedpensionbenefits,sincethebenefitsarec

20、ollateralizedbyamorediversifiedportfolioofassets.Inthecaseofbothcompanies,however,anyunfundedpensionliabilityreducesshareholdersequity.ComfortShoeCompanyofEnglandhasdecidedtospinoffitsTangoDanceShoeDivisionasaseparatecorporationintheUnitedStates.TheassetsoftheTangoDanceShoeDivisionhavethesameoperati

21、ngriskcharacteristicsasthoseofComfort.ThecapitalstructureofComforthasbeen40%debtand60%equityintermsofmarketingvalues,andisconsideredbymanagementtobeoptimal.TherequiredreturnonComfortsassets(ifunlevered)is16%peryear,andtheinterestratethatthefirm(andthedivision)mustcurrentlypayontheirdebtis10%peryear.

22、SalesrevenuefortheTangoShoeDivisionisexpectedtoremainindefinitelyatlastyearslevelof$10million.Variablecostsare55%ofsales.Annualdepreciationis$1million,whichisexactlymatchedeachyearbynewinvestments.Thecorporatetaxrateis40%.HowmuchistheTangoShoeDivisionworthinunleveredform?IftheTangoShoeDivisionisspun

23、offwith$5millionindebt,howmuchwoulditbeworth?WhatrateofreturnwilltheshareholdersoftheTangoShoeDivisionrequire?Showthatthemarketvalueoftheequityofthenewfirmwouldbejustifiedbytheearningstotheshareholders.SOLUTION:TheunleveredfreecashflowfortheTangoShoeDivisionwouldbe(in$millions): TOC o 1-5 h z Sales:

24、$10.0Var.Cost:5.5Depreciation1.0TaxableIncome$3.5Taxes(40%)1.4After-TaxIncome$2.1Depreciation1.0Investment1.0FreeCashFlow$2.1millionUnlevered,Tangoisworth:$2.1million/0.16=$13.125millionIfTangohad$5millionofdebt,itstotalvaluewouldbe:MarketValuewithDebt=MarketValuewithoutDebt+PVofInterestTaxShieldVL=

25、Vu+TxB=$13.125+(.4x5)=$15.125millionTangoEquity=$15.125$5=$10.125millionTangoscostofequitycapitalwouldbe.1778ke=k+(1-T)(k-r)D/E=.16+(1-.4)(.16-.10)x5/10.125=.1778Thevalueoftheequityshouldbethepresentvalueoftheexpectednetincomediscountedattherequiredrateofreturnonequity.Theexpectednetincomewillbetheu

26、nleveredcashflowlesstheafter-taxcostoftheinterestofthedebt:$2.1-(.6)(.1x$5)=$2.1-$.3=$1.8millionperyearS=$1.8million/.1778=$10.125million5.Basedontheaboveproblem,SupposethatFoxtrotDanceShoesmakescustomdesigneddanceshoesandisacompetitorofTangoDanceShoes.FoxtrothassimilarrisksandcharacteristicsasTango

27、exceptthatitiscompletelyunlevered.FearfulthatTangoDanceShoesmaytrytotakeoverFoxtrotinordertocontroltheirnicheinthemarket,Foxtrotdecidestoleverthefirmtobuybackstock.Iftherearecurrently500,000sharesoutstanding,whatisthevalueofFoxtrotsstock?HowmanysharescanFoxtrotbuybackandatwhatvalueifitiswillingtobor

28、row30%ofthevalueofthefirm?Whatifitiswillingtoborrow40%ofthevalueofthefirm?ShouldFoxtrotborrowmore?SOLUTION:Currentpricepershare:$13.125million/.5millionshares=$26.25pershare30%debtAmounttoborrow:30%of13.125million=$3.9375millionPVofTaxShield=.4x$3.9375million=$1.575millionValueofleveredfirm=$13.125+

29、$1.575=$14.7millionValueofequityinleveredfirm=$14.7million$3.9375million=$10.7625millionTocomputethenumberofsharesFoxtrotcanrepurchase,weneedtoknowthepricepershare.IfFoxtrotcanrepurchasesharesattheexistingpriceof$26.25thenthenumberofsharesretiredwillbe$3.9375million/$26.25pershare=.15millionshares.T

30、hiswillleave.35millionsharesoutstanding,andthepriceofeachsharewillbe$10.7625million/.35million=$30.75.IfthePVofthetaxshieldgetsincorporatedinthepriceofthesharesbeforetherepurchase,thenthepriceoftheshareswillincreaseby$1.575million/.5million=$3.15.Sothepriceoftherepurchasedshareswillbe$26.25+$3.15=$2

31、9.40.Thenthenumberofsharesretiredwillbe$3.9375million/$29.40pershare=133,929shares.Thiswillleave366,071sharesoutstandingeachwithapriceof$29.40.40%debtAmounttoborrow:40%of$13.125million=$5.25millionPVofTaxShield=.4x$5.25million=$2.1millionValueofleveredfirm=$13.125+$2.1=$15.225millionValueofequityinl

32、everedfirm=$15.225million$5.25million=$9.975millionIfFoxtrotcanrepurchasesharesattheexistingpriceof$26.25thenthenumberofsharesretiredwillbe$5.25million/$26.25pershare=.2millionshares.Thiswillleave.3millionsharesoutstanding,andthepriceofeachsharewillbe$9.975million/.3million=$33.25.IfthePVofthetaxshi

33、eldgetsincorporatedinthepriceofthesharesbeforetherepurchase,thenthepriceoftheshareswillincreaseby$2.1million/.5million=$4.20.Sothepriceoftherepurchasedshareswillbe$26.25+$4.20=$30.45.Thenthenumberofsharesretiredwillbe$5.25million/$30.45pershare=172,414shares.Thiswillleave327,586sharesoutstandingeach

34、withapriceof$30.45.Foxtrotsmanagementmusttradeoffthetaxsavingsduetoadditionaldebtfinancingagainstthecostsoffinancialdistressthatrisewiththedegreeofdebtfinancing.6.Hanna-CharlesCompanyneedstoaddanewfleetofvehiclesfortheirsalesforce.Thepurchasingmanagerhasbeenworkingwithalocalcardealershiptogetthebest

35、valueforthecompanydollar.Aftersomenegotiations,alocaldealerhasofferedHanna-Charlestwooptions:1)athreeyearleaseonthefleetofcarsor2)15%offthetoptopurchaseoutright.Option2wouldcostHanna-Charlescompanyabout5%lessthantheleaseoptionintermsofpresentvalue.Whataretheadvantagesanddisadvantagesofleasing?Whicho

36、ptionshouldthepurchasingmanageratHanna-Charlespursueandwhy?SOLUTION:Advantages:Thelessorbearsalltheresidual-valueriskTaxBenefitsNodisposalconcerns(orresale)whenlifeofequipmentisexpended.Disadvantages:NoownershipwhilemaintainingmaintenanceresponsibilityLeaseorBuy:Hanna-Charlescompanyshouldlease.Altho

37、ughtheymayspendmorewiththelease,theydonotbeartheresidual-valuerisk.HavemandNeedemcompaniesareexactlythesamedifferingonlyintheircapitalstructures.HavemisanunleveredfirmissuingonlystockswhereasNeedemissuesstocksandbonds.Neitherfirmpayscorporatetaxes.Havempaysoutallofitsyearlyearningsintheformofdividen

38、dsandhas1millionsharesoutstanding.Itsmarketcapitalizationrateis11%andthefirmiscurrentlyvaluedat$180million.Needemisidenticalexceptthat40%ofitsvalueisinbondsandhas500,000sharesoutstanding.Needemsbondsareriskfreeandpayacouponof9%peryearandarerolledovereveryyear.WhatisthevalueofNeedemsshares?Asaninvest

39、orforecastingtheupcomingyear,youexamineHavemandNeedemusingthreepossiblestatesoftheeconomythatareallequallylikely:normal,bad,andexceptional.Assumingtheearningswillbethesame,onehalf,andoneandahalfrespectively,produceatablethatshowstheearningsandtheearningspershareforbothHavemandNeedeminallthreescenari

40、os.SOLUTION:Needemhas$72millionindebtand$108millioninequity.Sincethereare500,000shares,thevalueofeachshareis$216.ExpectedEBIT=$180millionx11%=$19.8millionperyearInterestexpenseforNeedem=$72millionx.09=$6.48millionperyearStateoftheEconomyEBITHavemNeedemEPS(1millionshares)NetEarningsbEPS(500,000shares

41、)BadNormalExceptional$9.919.829.7$9.90/share19.8029.70$3.42millio13.3223.22$6.84/share26.6446.44MeanStd.Dev.19.808.0826.6416.17bEBIT-InterestExpenseUsingtheforegoingexample,letusnowassumethatHavemandNeedemmustpaytaxesattherateof40%annually.Giventhesamedistributionofpossibleoutcomesaspreviously:Whata

42、rethepossibleafter-taxcashflowsforHavemandNeedem?Whatarethevaluesoftheshares?Ifonewasnotriskaverse,whichcompanywouldthatpersoninvestin?SOLUTION:After-taxCFHavem=(1TaxRate)EBIT=NetincomeNetincomeNeedem=(1TaxRate)(EBITInt.Pmt.)CFNeedem=(1TaxRate)(EBIT)+TaxRatexInt.PmtCFNeedem(bad)=(.60)$9.9+(.40)x6.48

43、=$8.532millionCReedem(normal)=(.60)$19.8+(.40)x6.48=$14.472millionCFNeedem(except.)=(.60)$29.7+(.40)x6.48=$20.412millionState of the EconomyHavemNeedemAfter-TaxCashTaxShieldonAfter-TaxCashFlowDebtFlowBad$5.94million$2.592million$8.532millionNormal11.88million$2.592million$14.472millionExceptional17.82million$2.592million$20.412millionTheequityof