(精品)8-Chap015CapitalStructureBasicConcepts.ppt

McGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-0Corporate Finance Ross Westerfield JaffeSeventh EditionSeventh Edition15Chapter Fifteen Capital Structure:Basic ConceptsMcGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-1Chapter Outline15.1 The Capital-Structure Question and The Pie Theory15.2 Maximizing Firm Value versus Maximizing Stockholder Interests15.3 Financial Leverage and Firm Value:An Example15.4 Modigliani and Miller:Proposition II(No Taxes)15.5 Taxes15.6 Summary and ConclusionsMcGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-2The Capital-Structure Question and The Pie TheoryThe value of a firm is defined to be the sum of the value of the firms debt and the firms equity.V=B+S If the goal of the management of the firm is to make the firm as valuable as possible,then the firm should pick the debt-equity ratio that makes the pie as big as possible.Value of the FirmS BS BS BS BMcGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-3The Capital-Structure QuestionThere are really two important questions:1.Why should the stockholders care about maximizing firm value?Perhaps they should be interested in strategies that maximize shareholder value.2.What is the ratio of debt-to-equity that maximizes the shareholders value?As it turns out,changes in capital structure benefit the stockholders if and only if the value of the firm increases.McGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-4Financial Leverage,EPS,and ROE CurrentAssets$20,000Debt$0Equity$20,000Debt/Equity ratio0.00Interest raten/aShares outstanding400Share price$50Proposed$20,000$8,000$12,0002/38%240$50Consider an all-equity firm that is considering going into debt.(Maybe some of the original shareholders want to cash out.)McGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-5EPS and ROE Under Current Capital StructureRecessionExpectedExpansionEBIT$1,000$2,000$3,000Interest000Net income$1,000$2,000$3,000EPS$2.50$5.00$7.50ROA5%10%15%ROE5%10%15%Current Shares Outstanding=400 sharesMcGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-6EPS and ROE Under Proposed Capital StructureRecessionExpectedExpansionEBIT$1,000$2,000$3,000Interest640640640Net income$360$1,360$2,360EPS$1.50$5.67$9.83ROA5%10%15%ROE3%11%20%Proposed Shares Outstanding=240 sharesMcGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-7EPS and ROE Under Both Capital StructuresLeveredRecessionExpectedExpansionEBIT$1,000$2,000$3,000Interest640640640Net income$360$1,360$2,360EPS$1.50$5.67$9.83ROA5%10%15%ROE3%11%20%Proposed Shares Outstanding=240 sharesAll-EquityRecessionExpectedExpansionEBIT$1,000$2,000$3,000Interest000Net income$1,000$2,000$3,000EPS$2.50$5.00$7.50ROA5%10%15%ROE5%10%15%Current Shares Outstanding=400 sharesMcGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-8Financial Leverage and EPS(2.00)0.002.004.006.008.0010.0012.001,0002,0003,000EPSDebtNo DebtBreak-even point EBI in dollars,no taxesAdvantage to debtDisadvantage to debtEBIT1,600McGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-9Assumptions of the Modigliani-Miller ModelHomogeneous ExpectationsHomogeneous Business Risk ClassesPerpetual Cash FlowsPerfect Capital Markets:Perfect competitionFirms and investors can borrow/lend at the same rateEqual access to all relevant informationNo transaction costsNo taxesMcGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-10Homemade Leverage:An ExampleRecession Expected ExpansionEPS of Unlevered Firm$2.50$5.00$7.50Earnings for 40 shares$100$200$300Less interest on$800(8%)$64$64$64Net Profits$36$136$236ROE(Net Profits/$1,200)3%11%20%We are buying 40(from 400)shares of a$50 stock on margin.We get the same ROE as if we bought into a levered firm.Our personal debt equity ratio is:McGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-11Homemade(Un)Leverage:An ExampleRecession Expected ExpansionEPS of Levered Firm$1.50$5.67$9.83Earnings for 24 shares$36$136$236Plus interest on$800(8%)$64$64$64Net Profits$100$200$300ROE(Net Profits/$2,000)5%10%15%Buying 24 shares of an other-wise identical levered firm along with the some of the firms debt gets us to the ROE of the unlevered firm.This is the fundamental insight of M&MMcGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-12The MM Propositions I&II(No Taxes)Proposition IFirm value is not affected by leverageVL=VUProposition IILeverage increases the risk and return to stockholdersrs=r0+(B/SL)(r0-rB)rB is the interest rate(cost of debt)rs is the return on(levered)equity(cost of equity)r0 is the return on unlevered equity(cost of capital)B is the value of debtSL is the value of levered equityMcGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-13The MM Proposition I(No Taxes)The derivation is straightforward:The present value of this stream of cash flows is VL The present value of this stream of cash flows is VU McGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-14The MM Proposition II(No Taxes)The derivation is straightforward:McGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-15The Cost of Equity,the Cost of Debt,and the Weighted Average Cost of Capital:MM Proposition II with No Corporate TaxesDebt-to-equity RatioCost of capital:r(%)r0rBrBMcGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-16The MM Propositions I&II(with Corporate Taxes)Proposition I(with Corporate Taxes)Firm value increases with leverageVL=VU+TC BProposition II(with Corporate Taxes)Some of the increase in equity risk and return is offset by interest tax shieldrS=r0+(B/S)(1-TC)(r0-rB)rB is the interest rate(cost of debt)rS is the return on equity(cost of equity)r0 is the return on unlevered equity(cost of capital)B is the value of debtS is the value of levered equityMcGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-17The MM Proposition I(Corp.Taxes)The present value of this stream of cash flows is VL The present value of the first term is VU The present value of the second term is TCB McGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-18The MM Proposition II(Corp.Taxes)Start with M&M Proposition I with taxes:Since The cash flows from each side of the balance sheet must equal:Divide both sides by SWhich quickly reduces toMcGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-19The Effect of Financial Leverage on the Cost of Debt and Equity Capital with Corporate TaxesDebt-to-equityratio(B/S)Cost of capital:r(%)r0rBMcGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-20Total Cash Flow to Investors Under Each Capital Structure with Corp.TaxesAll-EquityRecessionExpectedExpansionEBIT$1,000$2,000$3,000Interest000EBT$1,000$2,000$3,000Taxes(Tc=35%$350$700$1,050Total Cash Flow to S/H$650$1,300$1,950LeveredRecessionExpectedExpansionEBIT$1,000$2,000$3,000Interest($800 8%)640640640EBT$360$1,360$2,360Taxes(Tc=35%)$126$476$826Total Cash Flow$234+640$884+$640$1,534+$640(to both S/H&B/H):$874$1,524$2,174EBIT(1-Tc)+TCrBB$650+$224$1,300+$224$1,950+$224$874$1,524$2,174McGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-21Total Cash Flow to Investors Under Each Capital Structure with Corp.TaxesThe levered firm pays less in taxes than does the all-equity firm.Thus,the sum of the debt plus the equity of the levered firm is greater than the equity of the unlevered firm.SGSGB All-equity firm Levered firmMcGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-22Total Cash Flow to Investors Under Each Capital Structure with Corp.TaxesThe sum of the debt plus the equity of the levered firm is greater than the equity of the unlevered firm.This is how cutting the pie differently can make the pie larger:the government takes a smaller slice of the pie!SGSGB All-equity firm Levered firmMcGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-23Summary:No TaxesIn a world of no taxes,the value of the firm is unaffected by capital structure.This is M&M Proposition I:VL=VUProp I holds because shareholders can achieve any pattern of payouts they desire with homemade leverage.In a world of no taxes,M&M Proposition II states that leverage increases the risk and return to stockholdersMcGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-24Summary:TaxesIn a world of taxes,but no bankruptcy costs,the value of the firm increases with leverage.This is M&M Proposition I:VL=VU+TC BProp I holds because shareholders can achieve any pattern of payouts they desire with homemade leverage.In a world of taxes,M&M Proposition II states that leverage increases the risk and return to stockholders.McGraw-Hill/IrwinCopyright 2004by The McGraw-Hill Companies,Inc.All rights reserved.15-25Prospectus:Bankruptcy CostsSo far,we have seen M&M suggest that financial leverage does not matter,or imply that taxes cause the optimal financial structure to be 100%debt.In the real world,most executives do not like a capital structure of 100%debt because that is a state known as“bankruptcy”.In the next chapter we will introduce the notion of a limit on the use of debt:financial distress.The important use of this chapter is to get comfortable with“M&M algebra”.