公司理財(cái)雙語8costofcapital

Chapter8

PrinciplesofCorporateFinanceNinthEditionCostofCapital15-2TopicsCoveredKnowhowtodetermineafirm’scostofequitycapitalKnowhowtodetermineafirm’scostofdebtKnowhowtodetermineafirm’soverallcostofcapitalUnderstandpitfallsofoverallcostofcapitalandhowtomanagethem15-3ChapterOutlineTheCostofCapitalTheCostofEquityTheCostsofDebtandPreferredStockTheWeightedAverageCostofCapital15-4WhyCostofCapitalIsImportantWeknowthatthereturnearnedonassetsdependsontheriskofthoseassetsThereturntoaninvestoristhesameasthecosttothecompanyOurcostofcapitalprovidesuswithanindicationofhowthemarketviewstheriskofourassetsKnowingourcostofcapitalcanalsohelpusdetermineourrequiredreturnforcapitalbudgetingprojects15-5RequiredReturnTherequiredreturnisthesameastheappropriatediscountrateandisbasedontheriskofthecashflowsWeneedtoknowtherequiredreturnforaninvestmentbeforewecancomputetheNPVandmakeadecisionaboutwhetherornottotaketheinvestmentWeneedtoearnatleasttherequiredreturntocompensateourinvestorsforthefinancingtheyhaveprovided15-6CostofEquityThecostofequityisthereturnrequiredbyequityinvestorsgiventheriskofthecashflowsfromthefirmBusinessriskFinancialriskTherearetwomajormethodsfordeterminingthecostofequityDividendgrowthmodelSMLorCAPMInvestinprojectTheCostofEquityCapitalFirmwith

excesscashShareholder’sTerminalValuePaycashdividendShareholderinvestsinfinancialassetBecausestockholderscanreinvestthedividendinriskyfinancialassets,theexpectedreturnonacapital-budgetingprojectshouldbeatleastasgreatastheexpectedreturnonafinancialassetofcomparablerisk.Afirmwithexcesscashcaneitherpayadividendormakeacapitalinvestment15-8TheDividendGrowthModelApproachStartwiththedividendgrowthmodelformulaandrearrangetosolveforRE15-9DividendGrowthModelExampleSupposethatyourcompanyisexpectedtopayadividendof$1.50persharenextyear.Therehasbeenasteadygrowthindividendsof5.1%peryearandthemarketexpectsthattocontinue.Thecurrentpriceis$25.Whatisthecostofequity?15-10Example:EstimatingtheDividendGrowthRateOnemethodforestimatingthegrowthrateistousethehistoricalaverageYear Dividend PercentChange2000 1.23 -2001 1.30 2002 1.36 2003 1.43 1999 1.50(1.30–1.23)/1.23=5.7%(1.36–1.30)/1.30=4.6%(1.43–1.36)/1.36=5.1%(1.50–1.43)/1.43=4.9%Average=(5.7+4.6+5.1+4.9)/4=5.1%15-11AdvantagesandDisadvantagesofDividendGrowthModelAdvantage–easytounderstandanduseDisadvantagesNotapplicableifdividendsaren’tgrowingatareasonablyconstantrateExtremelysensitivetotheestimatedgrowthrate–anincreaseingof1%increasesthecostofequityby1%Doesnotconsiderrisk15-12TheSMLApproachUsethefollowinginformationtocomputeourcostofequityRisk-freerate,RfMarketriskpremium,E(RM)–RfSystematicriskofasset,

15-13Example-SMLSupposeyourcompanyhasanequitybetaof.58andthecurrentrisk-freerateis6.1%.Iftheexpectedmarketriskpremiumis8.6%,whatisyourcostofequitycapital?RE=6.1+.58(8.6)=11.1%SincewecameupwithsimilarnumbersusingboththedividendgrowthmodelandtheSMLapproach,weshouldfeelprettygoodaboutourestimate15-14AdvantagesandDisadvantagesofSMLAdvantagesadjustsforsystematicriskApplicabletoallcompanies,aslongaswecanestimatebetaDisadvantagesHavetoestimatetheexpectedmarketriskpremium,whichdoesvaryovertimeHavetoestimatebeta,whichalsovariesovertimeWeareusingthepasttopredictthefuture,whichisnotalwaysreliable15-15Example–CostofEquitySupposeourcompanyhasabetaof1.5.Themarketriskpremiumisexpectedtobe9%andthecurrentrisk-freerateis6%.Wehaveusedanalysts’estimatestodeterminethatthemarketbelievesourdividendswillgrowat6%peryearandourlastdividendwas$2.Ourstockiscurrentlysellingfor$15.65.Whatisourcostofequity?UsingSML:RE=6%+1.5(9%)=19.5%UsingDGM:RE=[2(1.06)/15.65]+.06=19.55%15-16CostofDebtThecostofdebtistherequiredreturnonourcompany’sdebtWeusuallyfocusonthecostoflong-termdebtorbondsTherequiredreturnisbestestimatedbycomputingtheyield-to-maturityontheexistingdebtWemayalsouseestimatesofcurrentratesbasedonthebondratingweexpectwhenweissuenewdebtThecostofdebtisNOTthecouponrate15-17Example:CostofDebtYieldtoMaturityYieldtoMaturityofaCouponBond15-20CostofPreferredStockRemindersPreferredstockgenerallypaysaconstantdividendeachperiodDividendsareexpectedtobepaideveryperiodforeverPreferredstockisaperpetuity,sowetaketheperpetuityformula,rearrangeandsolveforRPRP=D/P015-21Example:CostofPreferredStockYourcompanyhaspreferredstockthathasanannualdividendof$3.Ifthecurrentpriceis$25,whatisthecostofpreferredstock?RP=3/25=12%15-22TheWeightedAverageCostofCapitalistheratethatacompanyisexpectedtopayonaveragetoallitssecurityholderstofinanceitsassetsWecanusetheindividualcostsofcapitalthatwehavecomputedtogetour“average”costofcapitalforthefirm.This“average”istherequiredreturnonourassets,basedonthemarket’sperceptionoftheriskofthoseassetsTheweightsaredeterminedbyhowmuchofeachtypeoffinancingweuseTheWeightedAverageCostofCapitalTheWeightedAverageCostofCapitalisgivenby:Becauseinterestexpenseistax-deductible,wemultiplythelasttermby(1–

TC).RWACC=Equity+DebtEquity×REquity+Equity+Debt

Debt×RDebt

×(1–TC)RWACC=S+BS×RS+S+BB×RB×(1–TC)15-24TaxesandtheWACCWeareconcernedwithafter-taxcashflows,soweneedtoconsidertheeffectoftaxesonthevariouscostsofcapitalInterestexpensereducesourtaxliabilityThisreductionintaxesreducesourcostofdebtAfter-taxcostofdebt=RD(1-TC)Dividendsarenottaxdeductible,sothereisnotaximpactonthecostofequityWACC=wERE+wDRD(1-TC)15-25ExtendedExample–WACC-IEquityInformation50millionshares$80pershareBeta=