版权说明:本文档由用户提供并上传,收益归属内容提供方,若内容存在侵权,请进行举报或认领
文档简介
CHAPTER17CapitalBudgetingfor
theLeveredFirm0ProspectusRecallthattherearethreequestionsincorporatefinance.Thefirstregardswhatlong-terminvestmentsthefirmshouldmake(thecapitalbudgetingquestion).Thesecondregardstheuseofdebt(thecapitalstructurequestion).Thischapterconsidersthenexusofthesequestions.1ChapterOutline17.1AdjustedPresentValueApproach17.2FlowstoEquityApproach17.3WeightedAverageCostofCapitalMethod17.4AComparisonoftheAPV,FTE,andWACCApproaches17.5CapitalBudgetingWhentheDiscountRateMustBeEstimated17.6APVExample17.7BetaandLeverage17.8SummaryandConclusions217.1AdjustedPresentValueApproachAPV=NPV+NPVFThevalueofaprojecttothefirmcanbethoughtofasthevalueoftheprojecttoanunleveredfirm(NPV)plusthepresentvalueofthefinancingsideeffects(NPVF):Therearefoursideeffectsoffinancing:TheTaxSubsidytoDebtTheCostsofIssuingNewSecuritiesTheCostsofFinancialDistressSubsidiestoDebtFinancing3APVExample0 1 2 3 4
–$1,000 $125 $250 $375 $500Theunleveredcostofequityisr0=10%:Theprojectwouldberejectedbyanall-equityfirm:NPV<0.ConsideraprojectofthePearsonCompany,thetimingandsizeoftheincrementalafter-taxcashflowsforanall-equityfirmare:4APVExampleTheprojectwouldberejectedbyanall-equityfirm:NPV<0.CF2CF1F2F1CF01$1251–$56.50
–$1,000$250INPV10CF4CF3F4F31$3751$5005APVExample(continued)Now,imaginethatthefirmfinancestheprojectwith$600ofdebtatrB=8%.Pearson’staxrateis40%,sotheyhaveaninteresttaxshieldworthTCBrB=.40×$600×.08=$19.20eachyear.Thenetpresentvalueoftheprojectunderleverageis:APV=NPV+NPVdebttaxshieldSo,Pearsonshouldaccepttheprojectwithdebt.6APVExample(continued)NotethattherearetwowaystocalculatetheNPVoftheloan.Previously,wecalculatedthePVoftheinteresttaxshields.Now,let’scalculatetheactualNPVoftheloan:Whichisthesameanswerasbefore.APV=NPV+NPVF7TwoWaystoFindtheNPVoftheloan:NPVoftheloan:CF2CF1F2F1CF03–$28.80=1$63.59$600–$628.80INPV8PVoftheinteresttaxshields.
CF1F1CF04$63.59$0INPV8$19.20=.40×$600×.08
$600×.08×(1–.40)817.2FlowstoEquityApproachDiscountthecashflowfromtheprojecttotheequityholdersoftheleveredfirmatthecostofleveredequitycapital,rS.TherearethreestepsintheFTEApproach:StepOne:CalculatetheleveredcashflowsStepTwo:CalculaterS.StepThree:ValuationoftheleveredcashflowsatrS.9StepOne:LeveredCashFlowsforPearsonSincethefirmisusing$600ofdebt,theequityholdersonlyhavetocomeupwith$400oftheinitial$1,000.Thus,CF0=–$400Eachperiod,theequityholdersmustpayinterestexpense.Theafter-taxcostoftheinterestisB×rB×(1–TC)=$600×.08×(1–.40)=$28.800 1 2 3 4–$400 $221.20CF2=$250–
28.80$346.20CF3=$375–
28.80–$128.80CF4=$500–
28.80–
600CF1=$125–
28.80$96.2010StepTwo:CalculaterSforPearsonB=$600whenV=$1,007.09soS=$407.09.P
V=$943.50+$63.59=$1,007.09BSBVTocalculatethedebttoequityratio,,startwith11StepThree:ValuationforPearsonDiscountthecashflowstoequityholdersatrS=11.77%
01234–$400$96.20$221.20$346.20–$128.8012StepThree:ValuationforPearsonCF2CF1CF0$96.20$28.56
–$400$221.20INPV11.77%CF4CF3$346.20–$128.20DiscountthecashflowstoequityholdersatrS=11.77%01234–$400$96.20$221.20$346.20–$128.801317.3WACCMethodforPearsonTofindthevalueoftheproject,discounttheunleveredcashflowsattheweightedaveragecostofcapital.SupposePearson’stargetdebttoequityratiois1.5014ValuationforPearsonusingWACCTofindthevalueoftheproject,discounttheunleveredcashflowsattheweightedaveragecostofcapitalNPV7.58%=$6.6815ValuationforPearsonusingWACCCF2CF1CF0$125$6.68
–$1,000$250INPV7.58%CF4CF3$375$500Discounttheunleveredcashflowsattheweightedaveragecostofcapital01234–$1,000$125$250$375$5001617.4AComparisonoftheAPV,FTE,
andWACCApproachesAllthreeapproachesattemptthesametask:valuationinthepresenceofdebtfinancing.Guidelines:UseWACCorFTEifthefirm’stargetdebt-to-valueratioappliestotheprojectoverthelifeoftheproject.UsetheAPViftheproject’slevelofdebtisknownoverthelifeoftheproject.Intherealworld,theWACCisthemostwidelyusedbyfar.17Summary:APV,FTE,andWACC
APV WACC FTEInitialInvestment All All EquityPortionCashFlows UCF UCF LCFDiscountRates r0 rWACC rSPVoffinancingeffects Yes No NoWhichapproachisbest?UseAPVwhenthelevelofdebtisconstantUseWACCandFTEwhenthedebtratioisconstantWACCisbyfarthemostcommonFTEisareasonablechoiceforahighlyleveredfirm1817.5CapitalBudgetingWhentheDiscountRateMustBeEstimatedAscale-enhancingprojectisonewheretheprojectissimilartothoseoftheexistingfirm.Intherealworld,executiveswouldmaketheassumptionthatthebusinessriskofthenon-scale-enhancingprojectwouldbeaboutequaltothebusinessriskoffirmsalreadyinthebusiness.Noexactformulaexistsforthis.Someexecutivesmightselectadiscountrateslightlyhigherontheassumptionthatthenewprojectissomewhatriskiersinceitisanewentrant.1917.6APVExample:WorldwideTrousers,Inc.isconsideringreplacinga$5millionpieceofequipment.Theinitialexpensewillbedepreciatedstraight-linetozerosalvagevalueover5years;thepretaxsalvagevalueinyear5willbe$500,000.Theprojectwillgeneratepretaxsavingsof$1,500,000peryear,andnotchangetherisklevelofthefirm.Thefirmcanobtaina5-year$3,000,000loanat12.5%topartiallyfinancetheproject.Iftheprojectwerefinancedwithallequity,thecostofcapitalwouldbe18%.Thecorporatetaxrateis34%,andtherisk-freerateis4%.Theprojectwillrequirea$100,000investmentinnetworkingcapital.
CalculatetheAPV.2017.6APVExample:CostThecostoftheprojectisnot$5,000,000.Wemustincludetheroundtripinandoutofnetworkingcapitalandtheafter-taxsalvagevalue.Let’sworkourwaythroughthefourtermsinthisequation:NWCisriskless,sowediscountitatrf.Salvagevalueshouldhavethesameriskastherestofthefirm’sassets,soweuser0.+PV
depreciationtaxshield+PV
interesttaxshieldPV
unleveredprojectAPV=–Cost+2117.6APVExample:PVunleveredprojectisthepresentvalueoftheunleveredcashflowsdiscountedattheunleveredcostofcapital,18%.Turningourattentiontothesecondterm,+PV
depreciationtaxshield+PV
interesttaxshieldPV
unleveredprojectAPV=–$4,873,561.25+PV
unleveredproject2217.6APVExample:PVdepreciationtaxshieldistheisthepresentvalueofthetaxsavingsduetodepreciationdiscountedattheriskfreerate:rf=4%Turningourattentiontothethirdterm,PV
depreciationtaxshield+PV
depreciationtaxshield+PV
interesttaxshield$3,095,899APV=–$4,873,561.25+PV
depreciationtaxshield2317.6APVExample:PVinteresttaxshieldisthepresentvalueofthetaxsavingsduetointerestexpensediscountedatthefirm’sdebtrate:rD=12.5%Turningourattentiontothelastterm,PV
interesttaxshield+$1,513,619+PV
interesttaxshield$3,095,899APV=–$4,873,561.25+2417.6APVExample:AddingitallupSincetheprojecthasapositiveAPV,itlookslikeago.Let’saddthefourtermsinthisequation:APV=
–$4,873,561.25+$3,095,899+$1,513,619+$453,972.46APV=$189,930+PV
depreciationtaxshield+PV
interesttaxshieldPV
unleveredprojectAPV=–Cost+2517.7BetaandLeverageRecallthatanassetbetawouldbeoftheform:2617.7BetaandLeverage:NoCorp.TaxesInaworldwithoutcorporatetaxes,andwithrisklesscorporatedebt,(bDebt=0)itcanbeshownthattherelationshipbetweenthebetaoftheunleveredfirmandthebetaofleveredequityis:Inaworldwithoutcorporatetaxes,andwithriskycorporatedebt,itcanbeshownthattherelationshipbetweenthebetaoftheunleveredfirmandthebetaofleveredequityis:2717.7BetaandLeverage:withCorp.TaxesInaworldwithcorporatetaxes,andrisklessdebt,itcanbeshownthattherelationshipbetweenthebetaoftheunleveredfirmandthebetaofleveredequityis: Since mustbemorethan1foraleveredfirm,itfollowsthatbEquity>bUnleveredfirm.2817.7BetaandLeverage:
withCorp.TaxesIfthebetaofthedebtisnon-zero,then:2917.8SummaryandConclusionsTheAPVformulacanbewrittenas:TheFTEformulacanbewrittenas:TheWACCformulacanbewrittenas3017.8SummaryandConclusionsUsetheWACCorFTEifthefirm'stargetdebttovalueratioappliestotheprojectoveritslife.WACCisthemostcommonlyusedbyfar.FTEhasappealforafirmdeeplyindebt.TheAPVmethodisusedifthelevelofdebtisknownovertheproject’slife.TheAPVmethodisfrequentlyusedforspecialsituationslikeinterestsubsidies,LBOs,andleases.Thebetaoftheequityofthefirmispositivelyrelatedtotheleverageofthefirm.31Example:HamilosWorldwide HamilosWorldwideisconsideringa$5millionexpansionoftheirexistingbusiness.Theinitialexpensewillbedepreciatedstraight-lineover5yearstozerosalvagevalue;thepretaxsalvagevalueinyear5willbe$500,000.Theprojectwillgeneratepretaxgrossearningsof$1,500,000peryear,andnotchangetherisklevelofthefirm.Hamiloscanobtaina5-year12.5%loantopartiallyfinancetheproject.Flotationcostsare1%oftheproceeds.Ifundertaken,thisprojectshouldmaintainatargetD/Eratioof1.50.Iftheprojectwerefinancedwithallequity,thecostofcapitalwouldbe18%.Thecorporatetaxrateis30%,andtherisk-freerateis6%.Theprojectwillrequirea$100,000investmentinnetworkingcapital.32HamilosWorldwideUsingWACCUsingtheWACCmethodology,commentonthedesirabilityofthisproject.
33HamilosWorldwideUsingWACCUsingtheWACCmethodology,commentonthedesirabilityofthisproject.
34HamilosWorldwideUsingAPVUsingtheAPVmethodology,commentonthedesirabilityofthisproject.
Firstsomepreliminaries:Thefirmwantstofinancetheprojectsuchthatthedebt-equityratio=1.5.Thisimpliesadebt-to-valueratioof3/5:
35HamilosWorldwideUsingAPVSo,let’sfind
STEPONE:+PV
depreciationtaxshield+PV
interesttaxshieldPV
unleveredproject=PV
unleveredproject–PV
flotationcostsPV
unleveredprojectandborrow3/5ofthatvalue.36HamilosWorldwideUsingAPVPV
unleveredprojectSt=15UCFt(1+r0)t=PV
depreciation=taxshieldSt=15D×TC(1+rf)t+PV
depreciationtaxshield+PV
interesttaxshieldPV
leveredproject=PV
unleveredproject–PV
flotationcosts37HamilosWorldwideUsingAPVRecallthatthedollaramountofdebtdependsonthePVject+PV
depreciationtaxshield+PV
interesttaxshieldPV
leveredproject=PV
unleveredproject–PV
flotationcostsPV
interesttaxshieldSt=15=TC×rD×(1+rD)t×
PV
unleveredproject35PV
interesttaxshieldSt=15=TC×rD×D(1+rD)tD
=35×PV
unleveredproject38HamilosWorldwideUsingAPV+PV
depreciationtaxshield+PV
interesttaxshieldPV
leveredproject=PV
unleveredproject–PV
flotationcostsD
=35×PV
unleveredprojectWeneedtoborrow
D*suchthat:Ourpre-taxflotationcostsareonepercentofD*
D*
×(1–.01)
=35×PVunleveredprojectprojectD*=10.9935
PVunlevered××0.01×D*
=0.010.9935
PVunleveredproject××39AdigressiononfloatationcostsOhbytheway,flotationcostsaredeductible.Sothepresentvalueoftheafter-taxflotationcostsarePVflotationcosts=0.010.9935
PVunleveredproject××–(1–
TC)×40HamilosWorldwideUsingAPV+PV
depreciationtaxshieldPV
leveredproject=PV
unleveredprojectSt=15UCFt(1+r0)t=St=15D×TC(1+rf)t++PV
interesttaxshieldSt=15+TC×rD×(1+rD)t×
PV
unleveredproject35–PV
flotationcosts0.010.9935
PVunleveredproject××–(1–
TC)×41HamilosWorldwideUsingAPV+PV
depreciationtaxshieldPV
leveredproject=PV
unleveredproject+PV
interesttaxshield–PV
flotationcosts42HamilosWorldwideUsingAPV+PV
depreciationtaxshieldPV
leveredproject=PV
unleveredproject=$3,283,529.57PVleveredprojec
温馨提示
- 1. 本站所有资源如无特殊说明,都需要本地电脑安装OFFICE2007和PDF阅读器。图纸软件为CAD,CAXA,PROE,UG,SolidWorks等.压缩文件请下载最新的WinRAR软件解压。
- 2. 本站的文档不包含任何第三方提供的附件图纸等,如果需要附件,请联系上传者。文件的所有权益归上传用户所有。
- 3. 本站RAR压缩包中若带图纸,网页内容里面会有图纸预览,若没有图纸预览就没有图纸。
- 4. 未经权益所有人同意不得将文件中的内容挪作商业或盈利用途。
- 5. 人人文库网仅提供信息存储空间,仅对用户上传内容的表现方式做保护处理,对用户上传分享的文档内容本身不做任何修改或编辑,并不能对任何下载内容负责。
- 6. 下载文件中如有侵权或不适当内容,请与我们联系,我们立即纠正。
- 7. 本站不保证下载资源的准确性、安全性和完整性, 同时也不承担用户因使用这些下载资源对自己和他人造成任何形式的伤害或损失。
最新文档
- 漳州市芗城区2024年一级造价工程师《造价管理》统考试题含解析
- 免疫学的应用-2024-2025学年高二生物同步教学课件(人教版2019选择性必修1)
- 浸水试验装置操作规程
- 初中化学方程式指南
- 千米苏教版教材内容解析
- 苏教版四年级上册数学期末历年真题精讲
- 湘教版湖南版小学三年级下册美术教案(全册)
- 案主需求评估表
- 新疆昌吉州回民中学2024年中考语文复习练习卷
- 2024你我家实木复合地板安装服务合同
- DB22T 1961-2013 公路填石路基施工技术规范
- 加建电梯业主同意送审方案签名表
- 自尊自爱自重自护青春期女生健康安全教育课件
- 皮肤病生活质量指标调查表-DLQI得分
- 直播电商孵化基地项目规划方案
- 井下变电所安装施工方案(常用)
- 一、提花装造工艺
- 医学院课堂教学质量督导专家评价表
- 六年级数学上册课件-4. 比的化简3-人教版(共9张PPT)
- 环境影响评价全套课件完整版电子教案最新板
- 黔东南州农业机械报废补贴办理流程图
评论
0/150
提交评论