How-to-Value-Bonds-and-S課件(PPT 73頁)

1、Corporate Finance Ross Westerfield JaffeSixth EditionSixth Edition5Chapter Five How to Value Bonds and Stocks第1頁，共73頁。Chapter Outline5.1Definition and Example of a Bond5.2How to Value Bonds5.3Bond Concepts5.4The Present Value of Common Stocks5.5Estimates of Parameters in the Dividend-Discount Model5

2、.6Growth Opportunities5.7The Dividend Growth Model and the NPVGO Model (Advanced)5.8Price Earnings Ratio5.9Stock Market Reporting5.10 Summary and Conclusions第2頁，共73頁。Valuation of Bonds and StockFirst Principles:Value of financial securities = PV of expected future cash flows To value bonds and stock

3、s we need to: Estimate future cash flows: Size (how much) and Timing (when) Discount future cash flows at an appropriate rate:The rate should be appropriate to the risk presented by the security. 第3頁，共73頁。5.1Definition and Example of a BondA bond is a legally binding agreement between a borrower and

4、 a lender:Specifies the principal amount of the loan.Specifies the size and timing of the cash flows:In dollar terms (fixed-rate borrowing)As a formula (adjustable-rate borrowing)第4頁，共73頁。5.1Definition and Example of a BondConsider a U.S. government bond listed as 6 3/8 of December 2009.The Par Valu

5、e of the bond is $1,000.Coupon payments are made semi-annually (June 30 and December 31 for this particular bond).Since the coupon rate is 6 3/8 the payment is $31.875.On January 1, 2002 the size and timing of cash flows are:第5頁，共73頁。5.2How to Value BondsIdentify the size and timing of cash flows.Di

6、scount at the correct discount rate.If you know the price of a bond and the size and timing of cash flows, the yield to maturity is the discount rate.第6頁，共73頁。Pure Discount BondsInformation needed for valuing pure discount bonds:Time to maturity (T) = Maturity date - todays dateFace value (F)Discoun

7、t rate (r)Present value of a pure discount bond at time 0:第7頁，共73頁。Pure Discount Bonds: ExampleFind the value of a 30-year zero-coupon bond with a $1,000 par value and a YTM of 6%.第8頁，共73頁。Level-Coupon BondsInformation needed to value level-coupon bonds:Coupon payment dates and time to maturity (T)

8、Coupon payment (C) per period and Face value (F) Discount rateValue of a Level-coupon bond= PV of coupon payment annuity + PV of face value第9頁，共73頁。Level-Coupon Bonds: ExampleFind the present value (as of January 1, 2002), of a 6-3/8 coupon T-bond with semi-annual payments, and a maturity date of De

9、cember 2009 if the YTM is 5-percent.On January 1, 2002 the size and timing of cash flows are:第10頁，共73頁。5.3Bond ConceptsBond prices and market interest rates move in opposite directions.2.When coupon rate = YTM, price = par value.When coupon rate YTM, price par value (premium bond)When coupon rate YT

10、M, price par value (discount bond)A bond with longer maturity has higher relative (%) price change than one with shorter maturity when interest rate (YTM) changes. All other features are identical.4. A lower coupon bond has a higher relative price change than a higher coupon bond when YTM changes. A

11、ll other features are identical.第11頁，共73頁。YTM and Bond Value8001000110012001300$140000.010.020.030.040.050.060.070.080.090.1Discount RateBond Value6 3/8When the YTM coupon, the bond trades at a discount.第12頁，共73頁。Maturity and Bond Price VolatilityCConsider two otherwise identical bonds.The long-matu

12、rity bond will have much more volatility with respect to changes in the discount rateDiscount RateBond ValueParShort Maturity BondLong Maturity Bond第13頁，共73頁。Coupon Rate and Bond Price VolatilityConsider two otherwise identical bonds.The low-coupon bond will have much more volatility with respect to

13、 changes in the discount rateDiscount RateBond ValueHigh Coupon BondLow Coupon Bond第14頁，共73頁。5.4The Present Value of Common StocksDividends versus Capital GainsDividend-Discount ModelValuation of Different Types of StocksZero GrowthConstant GrowthDifferential Growth第15頁，共73頁。Case 1: Zero GrowthAssum

14、e that dividends will remain at the same level foreverSince future cash flows are constant, the value of a zero growth stock is the present value of a perpetuity:第16頁，共73頁。Case 2: Constant GrowthSince future cash flows grow at a constant rate forever, the value of a constant growth stock is the pres

15、ent value of a growing perpetuity:Assume that dividends will grow at a constant rate, g, forever. i.e. .第17頁，共73頁。Case 3: Differential GrowthAssume that dividends will grow at different rates in the foreseeable future and then will grow at a constant rate thereafter.To value a Differential Growth St

16、ock, we need to:Estimate future dividends in the foreseeable future.Estimate the future stock price when the stock becomes a Constant Growth Stock (case 2).Compute the total present value of the estimated future dividends and future stock price at the appropriate discount rate.第18頁，共73頁。Case 3: Diff

17、erential GrowthAssume that dividends will grow at rate g1 for N years and grow at rate g2 thereafter .第19頁，共73頁。Case 3: Differential Growth Dividends will grow at rate g1 for N years and grow at rate g2 thereafter 0 1 2NN+1第20頁，共73頁。Case 3: Differential GrowthWe can value this as the sum of: an N-ye

18、ar annuity growing at rate g1plus the discounted value of a perpetuity growing at rate g2 that starts in year N+1第21頁，共73頁。Case 3: Differential GrowthTo value a Differential Growth Stock, we can useOr we can cash flow it out.第22頁，共73頁。A Differential Growth ExampleA common stock just paid a dividend

19、of $2. The dividend is expected to grow at 8% for 3 years, then it will grow at 4% in perpetuity. What is the stock worth?第23頁，共73頁。With the Formula第24頁，共73頁。A Differential Growth Example (continued)0 1 2340 1 2 3The constant growth phase beginning in year 4 can be valued as a growing perpetuity at

20、time 3.第25頁，共73頁。5.5 Estimates of Parameters in the Dividend-Discount ModelThe value of a firm depends upon its growth rate, g, and its discount rate, r. Where does g come from?Where does r come from?第26頁，共73頁。Formula for Firms Growth Rateg = Retention ratio Return on retained earnings第27頁，共73頁。Wher

21、e does r come from?The discount rate can be broken into two parts. The dividend yield The growth rate (in dividends)In practice, there is a great deal of estimation error involved in estimating r.第28頁，共73頁。Case第29頁，共73頁。5.6Growth OpportunitiesGrowth opportunities are opportunities to invest in posit

22、ive NPV projects.The value of a firm can be conceptualized as the sum of the value of a firm that pays out 100-percent of its earnings as dividends and the net present value of the growth opportunities.第30頁，共73頁。5.7The Dividend Growth Model and the NPVGO Model (Advanced)We have two ways to value a s

23、tock:The dividend discount model.The price of a share of stock can be calculated as the sum of its price as a cash cow plus the per-share value of its growth opportunities.第31頁，共73頁。The Dividend Growth Model and the NPVGO Model Consider a firm that has EPS of $5 at the end of the first year, a divid

24、end-payout ratio of 30%, a discount rate of 16-percent, and a return on retained earnings of 20-percent.The dividend at year one will be $5 .30 = $1.50 per share. The retention ratio is .70 ( = 1 -.30) implying a growth rate in dividends of 14% = .70 20%From the dividend growth model, the price of a

25、 share is:第32頁，共73頁。The NPVGO Model First, we must calculate the value of the firm as a cash cow. Second, we must calculate the value of the growth opportunities. Finally, 第33頁，共73頁。Dividend Discount Model RevisitDividend-Discount ModelFirmDebt ClaimsCore OperationsNoncooperation net AssetsCommon St

26、ock ClaimsFree Cash FlowNonoperating Cash FlowDebt ServicesOther Capital Cash FlowsDividendsCOMEQUITY=PV(DIVIDENDS)Other Capital Claims第34頁，共73頁。Other Useful ModelsFree Cash Flow ModelOther Capital ClaimsFirmDebt ClaimsCore OperationsNoncooperation net AssetsCommon Stock ClaimsFree Cash FlowNonopera

27、ting Cash FlowDebt ServicesOther Capital Cash FlowsDividendsComEquity=PV(FCF+NONOP-DEBT-OCAPComEquity=PV(FCF+NONOP-DEBT-OCAPComEquity=PV(FCF+NONOP-DEBT-OCAP第35頁，共73頁。Other Useful ModelsFree Cash Flow ModelFirmDebt ClaimsCore OperationsNoncooperation net AssetsCommon Equity ClaimsFree Cash FlowNonope

28、rating Cash FlowDebt ServicesOther Capital Cash FlowsDividendsComEquity=PV(FCF+NONOP-DEBT-OCAPOther Capital Claims第36頁，共73頁。Other Useful ModelsAdjusted Present Value ModelFirmDebt ClaimsCore OperationsNoncooperation net AssetsCommon Stock ClaimsFree Cash FlowNonoperating Cash FlowDebt ServicesOther

29、Capital Cash FlowsDividends ComEquity=PV(FCF at Unlevered cost of equity + VALUE of Leverage+NONOP-DEBT-OCAPOther Capital Claims第37頁，共73頁。Other Usful ModelResidual ModelFirmDebt ClaimsCore OperationsNoncooperation net AssetsCommon Stock ClaimsFree Cash FlowNonoperating Cash FlowDebt ServicesOther Ca

30、pital Cash FlowsDividends ComEquity=BV(CORE) + PV( RI from CORE +NONOP-DEBT-OCAPOther Capital Claims第38頁，共73頁。5.8Price Earnings RatioMany analysts frequently relate earnings per share to price.The price earnings ratio is a.k.a the multipleCalculated as current stock price divided by annual EPSThe Wa

31、ll Street Journal uses last 4 quarters earningsFirms whose shares are “in fashion” sell at high multiples. Growth stocks for example.Firms whose shares are out of favor sell at low multiples. Value stocks for example.第39頁，共73頁。Other Price Ratio AnalysisMany analysts frequently relate earnings per sh

32、are to variables other than price, e.g.:Price/Cash Flow Ratiocash flow = net income + depreciation = cash flow from operations or operating cash flowPrice/Salescurrent stock price divided by annual sales per sharePrice/Book (a.k.a Market to Book Ratio)price divided by book value of equity, which is

33、measured as assets - liabilities第40頁，共73頁。5.9Stock Market ReportingGap has been as high as $52.75 in the last year.Gap has been as low as $19.06 in the last year.Gap pays a dividend of 9 cents/shareGiven the current price, the dividend yield is %Given the current price, the PE ratio is 15 times earn

34、ings6,517,200 shares traded hands in the last days tradingGap ended trading at $19.25, down $1.75 from yesterdays close第41頁，共73頁。5.9Stock Market ReportingGap Incorporated is having a tough year, trading near their 52-week low. Imagine how you would feel if within the past year you had paid $52.75 fo

35、r a share of Gap and now had a share worth $19.25! That 9-cent dividend wouldnt go very far in making amends.Yesterday, Gap had another rough day in a rough year. Gap “opened the day down” beginning trading at $20.50, which was down from the previous close of $21.00 = $19.25 + $1.75Looks like cargo

36、pants arent the only things on sale at Gap.第42頁，共73頁。5.10Summary and ConclusionsIn this chapter, we used the time value of money formulae from previous chapters to value bonds and stocks.The value of a zero-coupon bond isThe value of a perpetuity is第43頁，共73頁。5.10Summary and Conclusions (continued)Th

37、e value of a coupon bond is the sum of the PV of the annuity of coupon payments plus the PV of the par value at maturity.The yield to maturity (YTM) of a bond is that single rate that discounts the payments on the bond to the purchase price.第44頁，共73頁。5.10Summary and Conclusions (continued)A stock ca

38、n be valued by discounting its dividends. There are three cases:Zero growth in dividendsConstant growth in dividendsDifferential growth in dividends第45頁，共73頁。5.10Summary and Conclusions (continued)The growth rate can be estimated as:g = Retention ratio Return on retained earningsAn alternative metho

39、d of valuing a stock was presented, the NPVGO values a stock as the sum of its “cash cow” value plus the present value of growth opportunities.第46頁，共73頁。Corporate Finance Ross Westerfield JaffeSixth EditionSixth Edition6Chapter Six Some Alternative Investment Rules第47頁，共73頁。Chapter Outline6.1 Why Us

40、e Net Present Value?6.2 The Payback Period Rule6.3 The Discounted Payback Period Rule6.4 The Average Accounting Return6.5 The Internal Rate of Return6.6 Problems with the IRR Approach6.7 The Profitability Index6.8 The Practice of Capital Budgeting6.9 Summary and Conclusions第48頁，共73頁。6.1 Why Use Net

41、Present Value?Accepting positive NPV projects benefits shareholders.NPV uses cash flowsNPV uses all the cash flows of the projectNPV discounts the cash flows properly第49頁，共73頁。The Net Present Value (NPV) RuleNet Present Value (NPV) = Total PV of future CFs + Initial InvestmentEstimating NPV:1. Estim

42、ate future cash flows: how much? and when?2. Estimate discount rate3. Estimate initial costsMinimum Acceptance Criteria: Accept if NPV 0Ranking Criteria: Choose the highest NPV第50頁，共73頁。Good Attributes of the NPV Rule1. Uses cash flows2. Uses ALL cash flows of the project3. Discounts ALL cash flows

43、properlyReinvestment assumption: the NPV rule assumes that all cash flows can be reinvested at the discount rate.第51頁，共73頁。6.2 The Payback Period RuleHow long does it take the project to “pay back” its initial investment?Payback Period = number of years to recover initial costsMinimum Acceptance Cri

44、teria: set by managementRanking Criteria: set by management第52頁，共73頁。The Payback Period Rule (continued)Disadvantages:Ignores the time value of moneyIgnores cash flows after the payback periodBiased against long-term projectsRequires an arbitrary acceptance criteriaA project accepted based on the pa

45、yback criteria may not have a positive NPVAdvantages:Easy to understandBiased toward liquidity第53頁，共73頁。6.3 The Discounted Payback Period RuleHow long does it take the project to “pay back” its initial investment taking the time value of money into account?By the time you have discounted the cash fl

46、ows, you might as well calculate the NPV.第54頁，共73頁。6.4 The Average Accounting Return RuleAnother attractive but fatally flawed approach.Ranking Criteria and Minimum Acceptance Criteria set by managementDisadvantages:Ignores the time value of moneyUses an arbitrary benchmark cutoff rateBased on book

47、values, not cash flows and market valuesAdvantages:The accounting information is usually availableEasy to calculate第55頁，共73頁。 6.5 The Internal Rate of Return (IRR) RuleIRR: the discount that sets NPV to zero Minimum Acceptance Criteria: Accept if the IRR exceeds the required return.Ranking Criteria:

48、 Select alternative with the highest IRRReinvestment assumption: All future cash flows assumed reinvested at the IRR.Disadvantages:Does not distinguish between investing and borrowing.IRR may not exist or there may be multiple IRR Problems with mutually exclusive investmentsAdvantages:Easy to unders

49、tand and communicate第56頁，共73頁。The Internal Rate of Return: ExampleConsider the following project:0123$50$100$150-$200The internal rate of return for this project is 19.44%第57頁，共73頁。The NPV Payoff Profile for This ExampleIf we graph NPV versus discount rate, we can see the IRR as the x-axis intercept

50、.IRR = 19.44%第58頁，共73頁。6.6 Problems with the IRR ApproachMultiple IRRs.Are We Borrowing or Lending?The Scale Problem.The Timing Problem.第59頁，共73頁。Multiple IRRsThere are two IRRs for this project: 0 1 2 3$200 $800-$200- $800100% = IRR20% = IRR1Which one should we use? 第60頁，共73頁。The Scale ProblemWould

51、 you rather make 100% or 50% on your investments?What if the 100% return is on a $1 investment while the 50% return is on a $1,000 investment?第61頁，共73頁。The Timing Problem0 1 2 3$10,000 $1,000$1,000-$10,000Project A0 1 2 3$1,000 $1,000 $12,000-$10,000Project BThe preferred project in this case depend

52、s on the discount rate, not the IRR. 第62頁，共73頁。The Timing Problem10.55% = crossover rate12.94% = IRRB16.04% = IRRA第63頁，共73頁。Calculating the Crossover RateCompute the IRR for either project “A-B” or “B-A”10.55% = IRR第64頁，共73頁。Mutually Exclusive vs. Independent ProjectMutually Exclusive Projects: only

53、 ONE of several potential projects can be chosen, e.g. acquiring an accounting system. RANK all alternatives and select the best one.Independent Projects: accepting or rejecting one project does not affect the decision of the other projects.Must exceed a MINIMUM acceptance criteria.第65頁，共73頁。6.7 The Profitabil