《金融学第二版》讲义大纲及课后习题答案详解 第16章.docx
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《金融学第二版》讲义大纲及课后习题答案详解 第16章.docx
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《金融学第二版》讲义大纲及课后习题答案详解第16章
CHAPTER16
CAPITALSTRUCTURE
Objectives
∙Tounderstandhowafirmcancreatevaluethroughitsfinancingdecisions.
∙Toshowhowtotakeaccountofafirm’sfinancingmixinevaluatinginvestmentdecisions.
Outline
16.1InternalversusExternalFinancing
16.2EquityFinancing
16.3DebtFinancing
16.4TheIrrelevanceofCapitalStructureinaFrictionlessEnvironment
16.5CreatingValuethroughFinancingDecisions
16.6ReducingCosts
16.7DealingwithConflictsofInterest
16.8CreatingNewOpportunitiesforStakeholders
16.9FinancingDecisionsinPractice
16.10HowtoEvaluateLeveredInvestments
Summary
∙Externalfinancingsubjectsacorporation’sinvestmentplansmoredirectlytothedisciplineofthecapitalmarketthaninternalfinancingdoes.
∙Debtfinancinginitsbroadestsenseincludesloansanddebtsecurities,suchasbondsandmortgages,aswellasotherpromisesoffuturepaymentbythecorporation,suchasaccountspayable,leases,andpensions.
∙Inafrictionlessfinancialenvironment,wheretherearenotaxesortransactioncosts,andcontractsarecostlesstomakeandenforce,thewealthofshareholdersisthesamenomatterwhatcapitalstructurethefirmadopts.
∙Intherealworldthereareanumberoffrictionsthatcancausecapitalstructurepolicytohaveaneffectonthewealthofshareholders.Theseincludetaxes,regulations,andconflictsofinterestbetweenthestakeholdersofthefirm.Afirm’smanagementmightthereforebeabletocreateshareholdervaluethroughitscapitalstructuredecisionsinoneofthreeways:
∙Byreducingtaxcostsorthecostsofburdensomeregulations.
∙Byreducingpotentialconflictsofinterestamongvariousstakeholdersinthefirm.
∙Byprovidingstakeholderswithfinancialassetsnototherwiseavailabletothem.
∙Therearethreealternativemethodsusedinestimatingthenetpresentvalueofaninvestmentprojecttotakeaccountoffinancialleverage:
theadjustedpresentvaluemethod,theflowstoequitymethod,andtheweightedaveragecostofcapitalmethod
SolutionstoProblemsatEndofChapter
Debt-EquityMix
1.DividoCorporationisanall-equityfinancedfirmwithatotalmarketvalueof$100million.Thecompanyholds$10millionincash-equivalentsandhas$90millioninotherassets.Thereare1,000,000sharesofDividocommonstockoutstanding,eachwithamarketpriceof$100.DividoCorporationhasdecidedtoissue$20millionofbondsandtorepurchase$20millionworthofitsstock.
a.Whatwillbetheimpactonthepriceofitssharesandonthewealthofitsshareholders?
Why?
b.AssumethatDivido’sEBIThasanequalprobabilityofbeing$20million,or$12million,or$4million.Showtheimpactofthefinancialrestructuringontheprobabilitydistributionofearningspershareintheabsenceoftaxes.Whydoesthefactthattheequitybecomesriskiernotnecessarilyaffectshareholderwealth?
SOLUTION:
a.InanM&Mfrictionlessenvironment,wheretherearenotaxesandcontractsarecostlesstomakeandenforce,thewealthofshareholdersisthesamenomatterwhatcapitalstructurethefirmadopts.Insuchanenvironment,neitherthestockpricenorshareholders’wealthwouldbeaffected.IntherealworldDivido’smanagementmightbeabletocreateshareholdervaluebyissuingdebtandrepurchasingsharesintwoways:
Byreducingtaxcosts
Byreducingthefreecashflowavailabletomanagementandexposingitselftogreatermarketdiscipline.
b.TheformulaforEPSwithoutdebtis:
EPSallequity=EBIT
1,000,000shares
Theinterestpaymentswillbe$1.2millionperyear(.06x$20million)regardlessoftherealizedvalueofEBIT.Thenumberofsharesoutstandingafterexchangingdebtforequitywillbe800,000.EPSwithdebtistherefore:
EPSwithdebt=NetEarnings=EBIT–$1.2million
800,000shares800,000shares
ProbabilityDistributionofDivido’sEBITandEPS
StateoftheEconomy
EBIT
Allequityfinancing
With$20millionofdebt
EPS
(1millionshares)
Net
Earnings
EPS
(800,000
shares)
Badbusiness
$4million
$4pershare
$2.8million
$3.50pershare
Normalbusiness
12
12
10.8
13.50
Goodbusiness
20
20
18.8
23.50
Mean
12
12
10.8
13.50
Standard
deviation
$6.53
$8.16
Althoughthesharesofstockbecomeriskierwithdebtfinancing,theexpectedearningspersharegoup.Inafrictionlessfinancialenvironment,theneteffectistoleavethepriceofthestockunaffected.
Leasing
2.PlentileaseandNoleasearevirtuallyidenticalcorporations.TheonlydifferencebetweenthemisthatPlentileaseleasesmostofitsplantandequipmentwhereasNoleasebuysitsplantandequipmentandfinancesitbyborrowing.Compareandcontrasttheirmarket-valuebalancesheets.
SOLUTION:
Market-ValueBalanceSheetsofNoleaseandPlentileaseCorporations
a.NoleaseCorporation
Assets
Liabilitiesand
Shareholders’Equity
Plantandequipment
Bonds
Otherassets
Equity
Total
Total
b.PlentileaseCorporation
Assets
Liabilitiesand
Shareholders’Equity
Plantandequipment
Lease
Otherassets
Equity
Total
Total
Themaindifferencebetweenthebondsandtheleaseasaformofdebtfinancingiswhobearstheriskassociatedwiththeresidualmarketvalueoftheleasedassetattheendofthetermofthelease.SinceNoleaseCorporationhasboughtitsequipment,itbearsthisrisk.InPlentilease’scase,however,itisthelessorthatbearsthisresidual-valuerisk.
PensionLiabilities
3.EuropensandAsiapensarevirtuallyidenticalcorporations.TheonlydifferencebetweenthemisthatEuropenshasacompletelyunfundedpensionplan,andAsiapenshasafullyfundedpensionplan.Compareandcontrasttheirmarket-valuebalancesheets.Whatdifferencedoesthefundingstatusofthepensionplanmaketothestakeholdersofthesetwocorporations?
SOLUTION:
BalanceSheetsofAsiapensandEuropensCorporations
a.AsiapensBalanceSheet
Assets
Liabilitiesand
Shareholders’Equity
Operatingassets:
Plant,equipment,etc.
Bonds
Pensionliability
Pensionassets:
stocks,bonds,etc.
Shareholders’Equity
Total
Total
b.EuropensBalanceSheet
Assets
Liabilitiesand
Shareholders’Equity
Operatingassets:
Plant,equipment,etc.
Pensionliability
Shareholders’Equity
Total
Total
Asiapenshasfundeditspensionplanbyissuingbondsandinvestingthefundsraisedinasegregatedpoolofpensionfundassets.ThesepensionassetstaketheformofadiversifiedportfolioofstocksandbondsissuedbyothercompaniesandserveascollateralforthepensionbenefitspromisedbyAsiapenstoitsemployees.InthecaseofEuropens,thereisnosegregatedpoolofpensionassets.ThepensionpromisesofEuropensarebackedbytheassetsofthecompanyitself.Therefore,theemployeesofAsiapensaremoresecureaboutreceivingtheirpromisedpensionbenefits,sincethebenefitsarecollateralizedbyamorediversifiedportfolioofassets.Inthecaseofbothcompanies,however,anyunfundedpensionliabilityreducesshareholdersequity.
4.ComfortShoeCompanyofEnglandhasdecidedtospinoffitsTangoDanceShoeDivisionasaseparatecorporationintheUnitedStates.TheassetsoftheTangoDanceShoeDivisionhavethesameoperatingriskcharacteristicsasthoseofComfort.ThecapitalstructureofComforthasbeen40%debtand60%equityintermsofmarketingvalues,andisconsideredbymanagementtobeoptimal.TherequiredreturnonComfort’sassets(ifunlevered)is16%peryear,andtheinterestratethatthefirm(andthedivision)mustcurrentlypayontheirdebtis10%peryear.
SalesrevenuefortheTangoShoeDivisionisexpectedtoremainindefinitelyatlastyear’slevelof$10million.Variablecostsare55%ofsales.Annualdepreciationis$1million,whichisexactlymatchedeachyearbynewinvestments.Thecorporatetaxrateis40%.
a.HowmuchistheTangoShoeDivisionworthinunleveredform?
b.IftheTangoShoeDivisionisspunoffwith$5millionindebt,howmuchwoulditbeworth?
c.WhatrateofreturnwilltheshareholdersoftheTangoShoeDivisionrequire?
d.Showthatthemarketvalueoftheequityofthenewfirmwouldbejustifiedbytheearningstotheshareholders.
SOLUTION:
a.TheunleveredfreecashflowfortheTangoShoeDivisionwouldbe(in$millions):
Sales:
$10.0
Var.Cost:
-5.5
Depreciation-1.0
TaxableIncome$3.5
Taxes(@40%)-1.4
After-TaxIncome$2.1
Depreciation1.0
Investment-1.0
FreeCashFlow$2.1million
Unlevered,Tangoisworth:
$2.1million/0.16=$13.125million
b.IfTangohad$5millionofdebt,itstotalvaluewouldbe:
MarketValuewithDebt=MarketValuewithoutDebt+PVofInterestTaxShield
VL=VU+TxB
=$13.125+(.4x5)=$15.125million
TangoEquity=$15.125-$5=$10.125million
c.Tango’scostofequitycapitalwouldbe.1778
ke=k+(1-T)(k-r)D/E=.16+(1-.4)(.16-.10)x5/10.125=.1778
d.Thevalueoftheequityshouldbethepresentvalueoftheexpectednetincomediscountedattherequiredrateofreturnonequity.Theexpectednetincomewillbetheunleveredcashflowlesstheafter-taxcostoftheinterestofthedebt:
$2.1-(.6)(.1x$5)=$2.1-$.3=$1.8millionperyear
S=$1.8million/.1778=$10.125million
5.Basedontheaboveproblem,SupposethatFoxtrotDanceShoesmakescustomdesigneddanceshoesandisacompetitorofTangoDanceShoes.FoxtrothassimilarrisksandcharacteristicsasTangoexceptthatitiscompletelyunlevered.FearfulthatTangoDanceShoesmaytrytotakeoverFoxtrotinordertocontroltheirnicheinthemarket,Foxtrotdecidestoleverthefirmtobuybackstoc
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