課程《財(cái)務(wù)管理基礎(chǔ)》英文課件ch15

1、Chapter 15Required Returns and the Cost of Capital Pearson Education Limited 2004Fundamentals of Financial Management, 12/eCreated by: Gregory A. Kuhlemeyer, Ph.D.Carroll College, Waukesha, WI權(quán)破寐縣磚截墳漆屁豪滯測忍漾藉剖京維延幅嘲瑟斂客波捶唯箔膀希娘汗精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第1頁，共51頁。After studying

2、 Chapter 15, you should be able to:Explain how a firm creates value and identify the key sources of value creation.Define the overall “cost of capital” of the firm. Calculate the costs of the individual components of a firms cost of capital - cost of debt, cost of preferred stock, and cost of equity

3、. Explain and use alternative models to determine the cost of equity, including the dividend discount approach, the capital-asset pricing model (CAPM) approach, and the before-tax cost of debt plus risk premium approach.Calculate the firms weighted average cost of capital (WACC) and understand its r

4、ationale, use, and limitations. Explain how the concept of Economic Value Added (EVA) is related to value creation and the firms cost of capital.Understand the capital-asset pricing models role in computing project-specific and group-specific required rates of return.生薄瞬芋侖靳庫盔迎澡豹唾蓬倉恒困餒試怠柒壬鏡紉畏涪淬凳稍干嗎稻辱

5、精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第2頁，共51頁。Required Returns and the Cost of Capital Creation of Value Overall Cost of Capital of the Firm Project-Specific Required Rates Group-Specific Required Rates Total Risk Evaluation孽釜惺眩涌閨腰荷陳癰瓤駛敗袋委欄悅樸只受龔絞鴉護(hù)攘織閘沙郭巢襟烘精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne

6、/ Wachowicz Tenth Edition第3頁，共51頁。Key Sources of Value CreationGrowthphase ofproductcycleBarriers tocompetitiveentryOther -e.g., patents,temporarymonopolypower,oligopolypricingCostMarketingandpricePerceivedqualitySuperiororganizationalcapabilityIndustry AttractivenessCompetitive Advantage浴游冷碼坦壩狀鈴鯨廄腹

7、貨湍跡柑悸洶棚漓甚影籮藹涪昧迅鳥跑聽危朗欠精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第4頁，共51頁。Overall Cost of Capital of the FirmCost of Capital is the required rate of return on the various types of financing. The overall cost of capital is a weighted average of the individual required rates of return (costs)

8、.洲堂僳莢了扭洶榆都篷搔邀饞等辟蒙頻塘攫津盎惜枷些超耀棗弱需奸憫釀精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第5頁，共51頁。Type of Financing Mkt ValWeightLong-Term Debt $ 35M 35%Preferred Stock$ 15M 15%Common Stock Equity $ 50M 50%$ 100M 100%Market Value of Long-Term Financing肢淪釉壕謅蚜洪手長謹(jǐn)湍娘阮炮胖楷銷創(chuàng)倍酚藝斗怨喪村慫譜簇擒拽拜紋精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15V

9、an Horne / Wachowicz Tenth Edition第6頁，共51頁。Cost of Debt is the required rate of return on investment of the lenders of a company.ki = kd ( 1 - T )Cost of DebtP0 =Ij + Pj(1 + kd)jSnj =1匯憑仕篷鴦舶負(fù)綻吠捻峪瞥蜒擾弓牡翔執(zhí)死哭鳳辱霹揪剔釉碟牧的爐詢?nèi)憔氛n程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第7頁，共51頁。Assume that Basket Won

10、ders (BW) has $1,000 par value zero-coupon bonds outstanding. BW bonds are currently trading at $385.54 with 10 years to maturity. BW tax bracket is 40%.Determination of the Cost of Debt$385.54 =$0 + $1,000(1 + kd)10伙咎間紳綢喪屆屬督俗果仇冠部葉校鉻免契坐挨祿紀(jì)傲套仔隴戮鴕搞示醉精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Editio

11、n第8頁，共51頁。(1 + kd)10 = $1,000 / $385.54= 2.5938(1 + kd)= (2.5938) (1/10)= 1.1 kd= .1 or 10% ki = 10% ( 1 - .40 )ki = 6%Determination of the Cost of Debt辟焉鍵幾尖拼捻砰卿然夠票漣榨思解辟逛韶版烘龜鹿續(xù)茲殆算辱邊隘焙啤精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第9頁，共51頁。Cost of Preferred Stock is the required rate of return

12、 on investment of the preferred shareholders of the company.kP = DP / P0Cost of Preferred Stock倔餓旗疊唆跋標(biāo)貪勁卜杜襖治它球烴范鐳臭境棘喉誰坦誅孝縛妖宇詐瘡李精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第10頁，共51頁。Assume that Basket Wonders (BW) has preferred stock outstanding with par value of $100, dividend per share of

13、$6.30, and a current market value of $70 per share.kP = $6.30 / $70kP = 9%Determination of the Cost of Preferred Stock筏柬精蔡神豫擋曙穩(wěn)扮測勿可毯趾帛倘賒絮羽瘟韭貍厭丟解顛撾禾礫漓哪精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第11頁，共51頁。Dividend Discount ModelCapital-Asset Pricing ModelBefore-Tax Cost of Debt plus Risk Pre

14、miumCost of Equity Approaches祥姐啤榜瘧奏餃臨牽仇彰哎石柯銘聾妖棲鐮當(dāng)懲爾甩娥絆灸踢寥圖財(cái)冗矩精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第12頁，共51頁。Dividend Discount Model The cost of equity capital, ke, is the discount rate that equates the present value of all expected future dividends with the current market price of th

15、e stock. D1 D2 D(1+ke)1 (1+ke)2 (1+ke)+ . . . +P0 =廷依鴦端峪翁甫舉霸竭千罕飄盈沖迫匙灌諷狀術(shù)藐渣糕仗困姐總吳香軋勘精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第13頁，共51頁。Constant Growth Model The constant dividend growth assumption reduces the model to:ke = ( D1 / P0 ) + gAssumes that dividends will grow at the constant ra

16、te “g” forever.糾聚厭啦奴扳峭鶴圓冠轎撐欽暈凹賄慕樂榮曳鋇牡思郴鏈襄舞陽狐焙哮豆精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第14頁，共51頁。Assume that Basket Wonders (BW) has common stock outstanding with a current market value of $64.80 per share, current dividend of $3 per share, and a dividend growth rate of 8% forever.ke =

17、( D1 / P0 ) + gke = ($3(1.08) / $64.80) + .08ke = .05 + .08 = .13 or 13%Determination of the Cost of Equity Capital辛坊層捉箭偏燭思論表謎予亂價(jià)瀑蘆焙苛措稿雇貍鋒耘繪席勇喂氯延苛五精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第15頁，共51頁。Growth Phases Model D0(1+g1)t Da(1+g2)t-a(1+ke)t (1+ke)tP0 = The growth phases assumption

18、leads to the following formula (assume 3 growth phases):S+ St=1at=a+1bt=b+1Db(1+g3)t-b(1+ke)t+S潘測鋁糞讕牽東其灑筋暇光沫逾軸緊提虹識(shí)曾片橢襄戳耀脹傍盞該防攣體精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第16頁，共51頁。Capital Asset Pricing Model The cost of equity capital, ke, is equated to the required rate of return in marke

19、t equilibrium. The risk-return relationship is described by the Security Market Line (SML).ke = Rj = Rf + (Rm - Rf)bj鄒紀(jì)異蹦著橫七蚤庇瘍務(wù)雨韋漚必簍愧簽儡忙蒼秘爍試氯檻黍脂幸添繪狡精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第17頁，共51頁。Assume that Basket Wonders (BW) has a company beta of 1.25. Research by Julie Miller sug

20、gests that the risk-free rate is 4% and the expected return on the market is 11.2% ke = Rf + (Rm - Rf)bj = 4% + (11.2% - 4%)1.25 ke = 4% + 9% = 13%Determination of the Cost of Equity (CAPM)氈輝愁九遍銑考蔥魁役輝烙碧霍臟峽輔氏肢論饞郁查托鏈良愉磁捂蜜盤旅精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第18頁，共51頁。Before-Tax Cost

21、of Debt Plus Risk Premium The cost of equity capital, ke, is the sum of the before-tax cost of debt and a risk premium in expected return for common stock over debt. ke = kd + Risk Premium* Risk premium is not the same as CAPM risk premium資諄哨藕畝潑視潞剃裸刮廖止投蕊弛裂淤鮮翼石線剁痰憾澡卒蔥斃僥揖樞精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne /

22、 Wachowicz Tenth Edition第19頁，共51頁。Assume that Basket Wonders (BW) typically adds a 3% premium to the before-tax cost of debt. ke = kd + Risk Premium= 10% + 3% ke = 13%Determination of the Cost of Equity (kd + R.P.)爹寨沈煤暫暴惕嫉蒲幟湛柔顆蘋次章毛畝姓喬洼蚜踏謝番蚜凈皖椒胃嫉妒精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第

23、20頁，共51頁。Constant Growth Model13%Capital Asset Pricing Model13%Cost of Debt + Risk Premium13% Generally, the three methods will not agree. Comparison of the Cost of Equity Methods蒜秦供俐沼苫煤置嗆除少壯俱又峽匆們散鏈暴田李賞澗浩剩窗溪膛褂割港精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第21頁，共51頁。Cost of Capital = kx(Wx)WA

24、CC = .35(6%) + .15(9%) + .50(13%)WACC = .021 + .0135 + .065 = .0995 or 9.95%Weighted Average Cost of Capital (WACC)Snx=1連惜塞悅埂喉釩啟絹計(jì)獅攬仍譏孜郁申懇撕輛眉犀渣雜蚜紡彭致燙摟審夸精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第22頁，共51頁。1.Weighting SystemMarginal Capital CostsCapital Raised in Different Proportions than

25、WACCLimitations of the WACC茨非悉俯傀月?lián)Q壘砷杠叫卷校械忻壽淵耙舷塢旦仔淤成察餾疏摳澳晴過孩精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第23頁，共51頁。2.Flotation Costs are the costs associated with issuing securities such as underwriting, legal, listing, and printing fees.a.Adjustment to Initial Outlayb.Adjustment to Discount

26、RateLimitations of the WACC驕麓霍爺吧梅念緣置盯貞債飼鈉浴瓢妖缸凋棟蘸業(yè)劃巢旅旭懈燦揪尿咎孩精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第24頁，共51頁。A measure of business performance.It is another way of measuring that firms are earning returns on their invested capital that exceed their cost of capital.Specific measure devel

27、oped by Stern Stewart and Company in late 1980s.Economic Value Added咐犢屜蒸組穩(wěn)語緬洪騾潛倆慰霞埋梆擇棧翼亡俘峨遭觀慢防搖韋纓婆蹤廉精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第25頁，共51頁。EVA = NOPAT Cost of Capital x Capital EmployedSince a cost is charged for equity capital also, a positive EVA generally indicates shareho

28、lder value is being created.Based on Economic NOT Accounting Profit.NOPAT net operating profit after tax is a companys potential after-tax profit if it was all-equity-financed or “unlevered.”Economic Value Added緒磨緣姨閉呢稗閥潮淹樞遵初快毫栽脾筑反談靛喚陌案酉柬喧廬遮閘薛羔精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第26頁

29、，共51頁。Add Flotation Costs (FC) to the Initial Cash Outlay (ICO).Impact: Reduces the NPVAdjustment to Initial Outlay (AIO)NPV =Snt=1CFt(1 + k)t- ( ICO + FC )揖酪攘敞浮尺藻矣祭沼糕階臟割郊賢梆軍駝篇諱身鍍?nèi)萋つ湫闭D腮蹈網(wǎng)精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第27頁，共51頁。Subtract Flotation Costs from the proceeds (price

30、) of the security and recalculate yield figures.Impact: Increases the cost for any capital component with flotation costs.Result: Increases the WACC, which decreases the NPV.Adjustment to Discount Rate (ADR)崗失礦需勿何庇姥艙久頑戰(zhàn)北棒折證揍欽馱鶴峨亨驢瞪聯(lián)幼用吠柿背喻攜精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第28頁，共51

31、頁。Initially assume all-equity financing.Determine project beta.Calculate the expected return.Adjust for capital structure of firm.Compare cost to IRR of project.Determining Project-Specific Required Rates of ReturnUse of CAPM in Project Selection:喲目震渦魂幅潞雁敝嗎湍囤奴云魔談脂細(xì)鴦米腳華陡芭目毒曼老摻巷彰岸精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van

32、 Horne / Wachowicz Tenth Edition第29頁，共51頁。Difficulty in Determining the Expected ReturnLocate a proxy for the project (much easier if asset is traded).Plot the Characteristic Line relationship between the market portfolio and the proxy asset excess returns.Estimate beta and create the SML.Determinin

33、g the SML:躇致侖癰丑牧腸粱蔥硬耘小私幅綜甥駿岸晦憎瘤棺簍傀裂躺馬尖蝶拾巋谷精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第30頁，共51頁。Project Acceptance and/or RejectionSMLXXXXXXXOOOOOOOSYSTEMATIC RISK (Beta)EXPECTED RATE OF RETURNRfAcceptReject乖芝鋇資驅(qū)汀兜炮猿奈沾彌涂塵卒南熟僅戳侄母鹽塵坯坤撼靈茫財(cái)間滇嘛精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Editio

34、n第31頁，共51頁。 1. Calculate the required return for Project k (all-equity financed).Rk = Rf + (Rm - Rf)bk 2.Adjust for capital structure of thefirm (financing weights).Weighted Average Required Return =ki% of Debt + Rk% of Equity Determining Project-Specific Required Rate of Return賂鉸榆謎夠軸盡們媳欲每摻季義狽籌息憋直彪賠

35、職須圣增扎閑江誹敝翔毗精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第32頁，共51頁。Assume a computer networking project is being considered with an IRR of 19%.Examination of firms in the networking industry allows us to estimate an all-equity beta of 1.5. Our firm is financed with 70% Equity and 30% Debt at

36、ki=6%.The expected return on the market is 11.2% and the risk-free rate is 4%.Project-Specific Required Rate of Return Example翻粵洲鄰氮離爵騁身鞋籍被術(shù)尚低瓣?duì)柨傆坎嘎境幊灾^啃拯漲勝馳帥謗邏精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第33頁，共51頁。 ke = Rf + (Rm - Rf)bj = 4% + (11.2% - 4%)1.5 ke = 4% + 10.8% = 14.8%WACC = .30

37、(6%) + .70(14.8%)= 1.8% + 10.36%= 12.16% IRR = 19% WACC = 12.16%Do You Accept the Project?恥惹鄖刪橢省劑翻道遞扭驗(yàn)基嗆傘寡野人月利于鼓瓦頑獵蔗蓄觸旭代崖舒精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第34頁，共51頁。Determining Group-Specific Required Rates of ReturnInitially assume all-equity financing.Determine group beta.Calcu

38、late the expected return.Adjust for capital structure of group.Compare cost to IRR of group project.Use of CAPM in Project Selection:疆動(dòng)灣鴿瞻硒刑臂割血吃蹋閉師故狄障必淖般江洼膊沽嚴(yán)汀鬧贖連幢朝莆精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第35頁，共51頁。Comparing Group-Specific Required Rates of ReturnGroup-SpecificRequired

39、ReturnsCompany Costof CapitalSystematic Risk (Beta)Expected Rate of Return倍捉朗摧協(xié)矽笑竹澆規(guī)態(tài)澳壓蹬嗎剎乒瑞各張開改箱茁陡驗(yàn)灶削崗冒諱耳精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第36頁，共51頁。Amount of non-equity financing relative to the proxy firm. Adjust project beta if necessary.Standard problems in the use of CAPM. P

40、otential insolvency is a total-risk problem rather than just systematic risk (CAPM).Qualifications to Using Group-Specific Rates呢坑蘆是匡節(jié)暫謙洪付榜虹冕韶凌脆嶄掖絞咋鞘卡帽罷泵右鳴蟄杰茶婁眾精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第37頁，共51頁。Risk-Adjusted Discount Rate Approach (RADR) The required return is increased

41、(decreased) relative to the firms overall cost of capital for projects or groups showing greater (smaller) than “average” risk.Project Evaluation Based on Total Risk瓦訴蚊物尋芍鹵航栓僻幼俘級魚景怯麻巾昧線釬死寄懂捐才憫桶免居忙邏精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第38頁，共51頁。RADR and NPVDiscount Rate (%)0 3 6 9 12

42、15RADR “high” risk at 15%(Reject!)RADR “l(fā)ow” risk at 10%(Accept!)Adjusting for risk correctlymay influence the ultimateProject decision.Net Present Value$000s151050-4坊貍別恤頻帝鴕注差靖傾淵肢解佩萍匈崩待訪阜跌唬嗅潦轄幟吠糾續(xù)莫斤精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第39頁，共51頁。Probability Distribution Approach Accep

43、tance of a single project with a positive NPV depends on the dispersion of NPVs and the utility preferences of management.Project Evaluation Based on Total Risk譬斥閹欣貨妙羽索叉節(jié)吵敝北屆追芬牽味煌檻真促麗惠吧面甜頗幣獸儲(chǔ)劍精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第40頁，共51頁。Firm-Portfolio ApproachBCAIndifferenceCurvesS

44、TANDARD DEVIATIONEXPECTED VALUE OF NPVCurves show“HIGH”Risk Aversion鐵跪乘勺遼事乘但葬險(xiǎn)嗡戌履風(fēng)修囂咯油飼普霄薊反回空紊閨焊滴楞呼祥精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第41頁，共51頁。Firm-Portfolio ApproachBCAIndifferenceCurvesSTANDARD DEVIATIONEXPECTED VALUE OF NPVCurves show“MODERATE”Risk Aversion懾筑七料刀悟狄品遲靖用特演匠嘴禍滌適菇變

45、垂肌迸躥員冗囊雍芭餓椒沒精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第42頁，共51頁。Firm-Portfolio ApproachBCAIndifferenceCurvesSTANDARD DEVIATIONEXPECTED VALUE OF NPVCurves show“LOW”Risk Aversion振唾蠅瓣戚弟層撲佩豁觀摳誓榴憚礦微脖恃碗娥大欄婦雁控軸步卯障水墑精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第43頁，共51頁。bj = bju 1 + (B/S)

46、(1-TC) bj: Beta of a levered firm. bju: Beta of an unlevered firm (an all-equity financed firm). B/S:Debt-to-Equity ratio in Market Value terms.TC :The corporate tax rate.Adjusting Beta for Financial Leverage焊窯贍息拔贍男非東筆碗淵珠絳貧矗皋犬勘慫月俏邊宵沼階闖燙疥豺始麻精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第44頁，共5

47、1頁。Adjusted Present Value (APV) is the sum of the discounted value of a projects operating cash flows plus the value of any tax-shield benefits of interest associated with the projects financing minus any flotation costs.Adjusted Present ValueAPV = UnleveredProject Value+Value ofProject Financing口厄鷹

48、剝磷吶啡苯租皮友裕之匈錯(cuò)污灶瓷嚙初牧滌示瑚烷御腿蔭坍棗谷榆精品課程財(cái)務(wù)管理基礎(chǔ)英文課件ch15Van Horne / Wachowicz Tenth Edition第45頁，共51頁。Assume Basket Wonders is considering a new $425,000 automated basket weaving machine that will save $100,000 per year for the next 6 years. The required rate on unlevered equity is 11%. BW can borrow $180,000 at 7% with $10,000 after-tax flotation costs. Principal is repaid at $30,000 per year (+ interest). The firm is in the 40% tax bracket. NPV and APV