资源描述
Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,The McGraw-Hill Companies,Inc.,2001,11-,1,Irwin/McGraw-Hill,Irwin/McGraw-Hill,Chapter 11,Fundamentals of Corporate Finance,Third Edition,The Cost of Capital,Brealey Myers Marcus,slides by Matthew Will,Irwin/McGraw-Hill,The McGraw-Hill Companies,Inc.,2001,TopicsCovered,GeothermalsCostofCapital,WeightedAverage CostofCapital(WACC),Capital Structure,RequiredRatesofReturn,BigOilsWACC,InterpretingWACC,FlotationCosts,Cost of Capital,Cost of Capital,-Thereturnthe firm,sinvestorscouldexpect to earniftheyinvestedinsecurities withcomparabledegrees of risk.,Capital Structure,-Thefirmsmix of longtermfinancingand equityfinancing.,Cost of Capital,Example,Geothermal Inc.has thefollowingstructure.Giventhatgeothermal pays8%for debtand 14%forequity,what is theCompany CostofCapital?,Cost of Capital,Example,-GeothermalInc.hasthe followingstructure.Giventhat geothermalpays8%fordebtand14%forequity,whatisthe CompanyCostofCapital?,Cost of Capital,Example,-GeothermalInc.hasthe followingstructure.Giventhat geothermalpays8%fordebtand14%forequity,whatisthe CompanyCostofCapital?,Cost of Capital,Example,-GeothermalInc.hasthe followingstructure.Giventhat geothermalpays8%fordebtand14%forequity,whatisthe CompanyCostofCapital?,Interestistaxdeductible.Givena35%tax rate,debtonlycostsus5.2%(i.e.8%x.65).,WACC,WeightedAverage CostofCapital(WACC),-Theexpectedrate of returnona portfolioofallthe firm,ssecurities.,Company costofcapital=Weightedaverage of debtand equityreturns.,WACC,WACC,ThreeStepstoCalculatingCost of Capital,1.Calculatethe value of eachsecurityasaproportion of thefirmsmarket value.,2.Determinethe required rateofreturn on eachsecurity.,3.Calculateaweightedaverage of these required returns.,WACC,Taxesareanimportant considerationinthe companycostofcapital becauseinterestpaymentsare deducted fromincome beforetaxiscalculated.,WACC,Weighted-averagecost of capital=,WACC,Example,-ExecutiveFruithasissued debt,preferredstockandcommon stock.The marketvalueofthesesecurities are$4mil,$2mil,and$6mil,respectively.The required returnsare 6%,12%,and18%,respectively.,Q:Determinethe WACCfor ExecutiveFruit,Inc.,WACC,Example,-continued,Step 1,Firm Value=4+2+6=$12mil,Step 2,Requiredreturns aregiven,Step 3,WACC,IssuesinUsingWACC,Debt hastwocosts.1)return on debtand 2)increased costofequity demanded duetotheincreaseinrisk,Betasmaychange withcapitalstructure,Corporatetaxescomplicatetheanalysisand maychangeour decision,MeasuringCapitalStructure,Inestimating WACC,do notusethe,Book Value,ofsecurities.,Inestimating WACC,usethe,MarketValue,ofthesecurities.,Book Valuesoftendonotrepresent thetrue marketvalueofa firm,ssecurities.,MeasuringCapitalStructure,MarketValueofBonds,-PV of allcoupons andparvaluediscountedatthecurrentinterestrate.,MarketValueofEquity,-Marketpricepersharemultipliedbythenumber of outstanding shares.,MeasuringCapitalStructure,MeasuringCapitalStructure,Ifthelongterm bonds payan8%couponand maturein12years,whatistheirmarketvalueassuminga9%YTM?,MeasuringCapitalStructure,RequiredRatesofReturn,Bonds,CommonStock,RequiredRatesofReturn,DividendDiscountModelCost of Equity,Perpetuity GrowthModel=,solveforr,e,RequiredRatesofReturn,ExpectedReturnonPreferred Stock,PriceofPreferredStock=,solvefor,preferred,FlotationCosts,Thecostofimplementingany financingdecisionmust be incorporatedinto thecash flows of theproject being evaluated.,Only theincrementalcostsoffinancingshould be included.,This is sometimescalledAdjustedPresentValue.,演讲完,毕,毕，谢,谢,谢观看,！,！,
展开阅读全文