跨国财务管理培训课件(110页PPT).pptx

1Chapter ObjectiveThis chapter deals with the international capital structure and the cost of capital of a MNC.2Cost of CapitalCost of Capital in Segmented vs.Integrated MarketsDoes the Cost of Capital Differ Among Countries?Cross-Border Listings of StocksThe Effect of Foreign Equity Ownership RestrictionsThe Financial Structure of Subsidiaries.Chapter Outline17-23Main contents:Cost of Capital in Segmented vs.Integrated MarketsCross-Border Listings of StocksThe Financial Structure of Subsidiaries.4Key wordsCapital asset pricing modelCapital structureCost of capitalIntegrated world capital markets资本资产定价模型资本资产定价模型资本结构资本结构资本成本资本成本一体化世界资本市场一体化世界资本市场5Key wordsWorld systematic riskWorld market portfolio世界系统风险世界系统风险世界市场投资组合世界市场投资组合6Introduction Recently,many major firms throughout the world have begun to internationalize their capital structure by raising funds from foreign as well as domestic sources.As a result,these corporations are becoming multinational not only in the scope of their business activities but also in their capital structure.7Introduction If international financial markets were completely integrated,it would not matter whether firms raised capital from domestic or foreign sources because the cost of capital would be equalized across countries.If,on the other hand,these markets are less than fully integrated,firms may be able to create value for their shareholders by issuing securities in foreign as well as domestic markets.81.Cost of CapitalThe cost of capital is the minimum rate of return an investment project must generate in order to pay its financing costs.For a levered firm,the financing costs can be represented by the weighted average cost of capital.91.1 Weighted Average Cost of CapitalWhere K=weighted average cost of capitalKl=cost of equity capital for a levered firmi=pretax cost of debt capitalt=marginal corporate income tax rate =debt-to-total-market-value ratio101.2 The Firms Investment Decision and the Cost of Capitalcost of capital(%)Investment($)IRRK globalK localIlocal IglobalA firm that can reduce its cost of capital will increase the profitable capital expenditures that the firm can take on and increase the wealth of the shareholders.112.Cost of Capital in Segmented vs.Integrated MarketsThe cost of equity capital(Ke)of a firm is the expected return on the firms stock that investors require.This return is frequently estimated using the CAPM:where122.Cost of Capital in Segmented vs.Integrated Markets Clearly integration or segmentation of international financial markets has major implications for determining the cost of capital.(example17.1)133.Does the Cost of Capital Differ among Countries?There do appear to be differences in the cost of capital in different countries.(Exhibit 17.5）When markets are imperfect,international financing can lower the firms cost of capital.(Case on pp423)One way to achieve this is to internationalize the firms ownership structure.144.Cross-Border Listings of StocksCross-border listings of stocks have become quite popular among major corporations.The largest contingent of foreign stocks are listed on U.S.exchanges.The London Stock Exchange attracted the next largest contingent of foreign stocks.154.1 Benefit of Cross-Border4.1.1 The company can expand its potential investor base,which will lead to a higher stock price and lower cost of capital.4.1.2 Cross-listing creates a secondary market for the companys shares,which facilitates raising new capital in foreign markets.164.1 Benefit of Cross-Border4.1.3 Cross-listing can enhance the liquidity of the companys stock.4.1.4 Cross-listing enhances the visibility of the companys name and its products in foreign marketplaces.174.1 Benefit of Cross-Border4.1.5 Cross-listing shares may be used as the“acquisition currency”for taking over foreign companies.4.1.6 Cross-listing may improve the companys corporate governance and transparency.184.2 Cost of Cross-Border4.2.1 It can be costly to meet the disclosure and listing requirements imposed by the foreign exchange and regulatory authorities.4.2.2 Once a companys stock is traded in overseas markets,there can be volatility spillover from these markets.194.2 Cost of Cross-Border4.2.3 Once a companys stock is make available to foreigners,they might acquire a controlling interest and challenge the domestic control of the company.On average,cross-border listings of stocks appears to be a profitable decision.So,The benefits outweigh the costs.205.The Effect of Foreign Equity Ownership RestrictionsWhile companies have incentives to internationalize their ownership structure to lower the cost of capital and increase market share,they may be concerned with the possible loss of corporate control to foreigners.In some countries,there are legal restrictions on the percentage of a firm that foreigners can own.These restrictions are imposed as a means of ensuring domestic control of local firms.215.1 Pricing-to-Market PhenomenonSuppose foreigners,if allowed,would like to buy 30 percent of a Korean firm.But they are constrained by ownership constraints imposed on foreigners to purchase at most 20 percent.Because this constraint is effective in limiting desired foreign ownership,foreign and domestic investors may face different market share prices.This dual pricing is the pricing-to-market phenomenon.Copyright 2007 by The McGraw-Hill Companies,Inc.All rights reserved.17-22Nestls Foreign Ownership Restrictions12,00010,0008,0006,0004,0002,000011203191824Source:Financial Times,November 26,1988 p.1.Adapted with permission.SFBearer shareRegistered shareCopyright 2007 by The McGraw-Hill Companies,Inc.All rights reserved.17-235.2An Example of Foreign Ownership Restrictions:NestllForeigners holding Nestl bearer shares were exposed to political risk in a country that is widely viewed as a haven from such risk.lThe Nestl episode illustrates nThe importance of considering market imperfections.nThe peril of political risk.nThe benefits to the firm of internationalizing its ownership structure.17-23246.The Financial Structure of SubsidiariesThere are three different approaches to determining the subsidiarys financial structure.1.Conform to the parent companys norm.2.Conform to the local norm of the country where the subsidiary operates.256.The Financial Structure of Subsidiaries.3.Vary judiciously to capitalize on opportunities to lower taxes,reduce financing costs and risk,and take advantage of various market imperfections.The third approach appears to be the most reasonable and consistent with the goal of minimizing the parents overall cost of capital.266.The Financial Structure of Subsidiaries.In addition to taxes,political risk should be given due consideration in the choice of a subsidiarys financial structure.27Questions 1.Explain why and how a firms cost of capital may decrease when the firms stock is cross-listed on foreign stock exchanges.Answer:If a stock becomes internationally tradable upon overseas listing,the required return on the stock is likely to go down because the stock will be priced according to the international systematic risk rather than the local systematic risk.It is well known that for a typical stock,the international systematic risk is lower than the local systematic risk.28Answers6.If capital markets are segmented,then investors can only invest domestically.This means that the market portfolio(M)in the CAPM formula would be the domestic portfolio instead of the world portfolio.In integrated international financial markets,the same future cash flows will be priced in the same way every where.Clearly integration or segmentation of international financial markets has major implications for determining the cost of capital.29Answers10.Because ownership constraints is effective in limiting desired foreign ownership,foreign and domestic investors may face different market share prices.This dual pricing is the pricing-to-market phenomenon.30Answers12.The parent firm is willing to let its subsidiary default,or the guarantee of its subsidiarys financial obligations becomes difficult to enforce across national borders.31Answers13.when the parent is not responsible for the subsidiarys obligations,and the subsidiary has to depend on local financing due to,say,segmentation of financial markets.1.In the notation of the book,K=(1 l)Kl+l(1-t)i Which of the following are correct?a)The debt-equity ratio is lb)The tax rate is tc)The after-tax cost of debt capital is id)All of the above32Answer:b2.At the optimal capital structure,a)K=(1 l)Kl+l(1-t)i will be minimizedb)The debt-equity ratio will be equal to the debt-to-value ratio.c)K=(1 l)Kl+l(1-t)i will be maximized d)None of the above33Answer:a3.Find the weighted average cost of capital for a firm that has a debt-to-equity ratio of 1,a tax rate of 34%,a levered cost of equity of 12%and an after-tax cost of debt of 8%a)9.6%b)7.968%c)14%d)none of the above34Answer:a4.The cost of equity capital is:a)the expected return on the firms stock that investors requireb)frequently estimated by using the Capital Asset Pricing Model(CAPM)c)generally considered to be a linear function of the systematic risk inherent in the security d)all of the above35Answer:d5.A reduced cost of equity capital increases the firms value:a)Through revaluation of the firms existing cash flows from existing projects.b)Through increased investment as more projects become positive NPVsc)Both a)and b)d)None of the above36Answer:c6.A value-maximizing firms would:a)Undertake an investment project as long as the IRR exceeds the NPVb)Undertake an investment project as long as the IRR is less than the cost of capital.c)Undertake an investment project as long as the IRR exceeds the cost of capital.d)None of the above37Answer:c7.The common stock of Kansas City Power and Light has a beta of 0.80.The Treasury bill rate is 4 percent and the market risk premium is 8 percent.KCP&L is in the 34%tax bracket.What is their cost of equity capital?a)12.0%b)10.4%c)7.20%d)6.4%38Answer:b8.The firms tax rate is 34%.The firms pre-tax cost of debt is 8%;the firms debt-to-equity ratio is 4;the risk-free rate is 3%;the beta of the firms common stock is 1.5;the market risk premium is 9%.What is the firms cost of equity capital?a)33.33%b)10.85%c)13.12%d)16.5%39Answer:d9.The firms tax rate is 34%.The firms pre-tax cost of debt is 8%;the firms debt-to-equity ratio is 4;the risk-free rate is 3%;the beta of the firms common stock is 1.5;the market risk premium is 9%.Calculate the weighted average cost of capital.a)33.33%b)7.52%c)9.02%d)16.5%40Answer:b10.Assume that XYZ Corporation is a leveraged company with the following information:Kl=cost of equity capital for XYZ=13%;i =before-tax borrowing cost=8%;t =marginal corporate income tax rate=30%;If XYZs debt-to-total-market-value ratio is 40%,then its.weighted average cost of capital,K,is:a)8%b)9%c)10%d)12%41Answer:c11.Calculate the debt-to-total-market-value ratio that would result in XYZ having a weighted average cost of capital of 9.3%.a)35%b)40%c)45%d)50%42Answer:d12.Assume that the risk-free rate of return is 4%,and the expected return on the market portfolio is 10%.If the systematic risk inherent in the stock of ABC Corporation is 1.80,using the Capital Asset Pricing Model(CAPM)calculate the expected return of ABC.a)14.0%b)14.8%c)16.0%d)16.8%43Answer:b13.One explanation for foreign equity ownership restrictionsa)Is to make it difficult or impossible for foreigners to gain control of a domestic company.b)Is to expropriate wealth from domestic shareholders.c)Is the arguments in favor of free traded)None of the above44Answer:a14.The Pricing-to-Market phenomenon a)Describes the potential effect of foreign equity ownership restrictions.b)Describes the premium or discount faced by foreign shareholders relative to domestic investors in the price of a stock due to legal restrictions imposed on foreign equity ownership.c)Was evidenced in the relative prices of Nestl shares prior to November 17,1988.d)All of the above45Answer:d15.With regard to the financial structure of a foreign subsidiarya)Using local financing can reduce political riskb)A MNC that finances a foreign investment with home-country equity faces greater risk of expropriation than if it had financed the investment with at least some local debt or equity.c)There may be advantages other than a reduction in political risk that encourage MNCs to finance foreign subsidiaries with local money.d)All of the above46Answer:d16.When the parent company fully responsible for the subsidiarys obligations,a)The independent financial structure of the subsidiary is irrelevant.b)Potential creditors will examine the parents overall financial condition,not the subsidiarys.c)The independent financial subsidiary can have the same capital structure as the parent.d)All of the above47Answer:d17.When the choice of financing a foreign subsidiary is between external debt and equity financinga)Political risk considerations tend to favor the latter.b)Political risk considerations tend to favor the former.c)Political risk is separate from financial risk and so does not enter into a discussion of debt equity ratios.d)None of the above48Answer:b18.The parent company should decide the financing method for its own subsidiaries a)With a view toward minimizing the parents overall cost of capitalb)By copying the norms of the host countryc)With a view toward gaming the bankruptcy system of the host countryd)None of the above49Answer:a50Chapter 18International Capital Budgeting51Chapter Objective This chapter discusses the methodology that a multinational firm can use to analyze the investment of capital in a foreign country.52Chapter OutlineReview of Domestic Capital BudgetingThe Adjusted Present Value ModelCapital Budgeting from the Parent Firms PerspectiveRisk Adjustment in the Capital Budgeting ProcessSensitivity AnalysisReal Options53Key wordsAdjusted present valueAll-equity cost of capitalIncremental cash flow调整现值调整现值纯权益资本成本纯权益资本成本增量现金流增量现金流541.Identify the SIZE and TIMING of all relevant cash flows on a time line.2.Identify the RISKINESS of the cash flows to determine the appropriate discount rate.3.Find NPV by discounting the cash flows at the appropriate discount rate.1.Review of Capital Budgeting1.1 The basic NPV equationWhere:CFt=expected incremental after-tax cash flow in year t,TVT=expected after tax cash flow in year T,including recapture of working capital,C0=initial investment at inception,K=weighted average cost of capital.T=economic life of the project in years.18.1561.2 The expansion of NPV equationFor our purposes it is necessary to rewrite the term of CFt.18.2c 18.2fRt is incremental revenueOCt is incremental operating cost Dt is incremental depreciation the marginal tax rate 571.2 The expansion of NPV equationSo 18.3582.The Adjusted Present Value ModelFrom MM theory,we know the value of levered firm would be18.4 a592.The APV modelSo,we can convert the NPV model into the APV modelThe value increased by debt.18.660