chapter 12 the global cost and availability of capital - 副本
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• • • •
10-5
Degree of difficulty to finance Channel of source(network) Total amount Quality of capital
© 2012 Pearson Education, Inc. All rights reserved.
10-12
© 2012 Pearson Education, Inc. All rights reserved.
• Capital Budget of acceptable item
10-3 © 2012 Pearson Education, Inc. All rights reserved.
Background information
Macdougall model： the difference of interest rates and expected profit margin nature of capital (p) principle: abundant to deficient low profit margin to high profit margin Residual cost frequency, return
• K
WACC=
Ke E/V + Kd (1-t) D/V
• Ke • Kd t D V
10-8
cost of equity before tax cost of debt marginal tax rate market value of firm’s equity market value of firm’s debt
Chapter 12
The global cost and availability of capital
sissi
Target
• Concepts of capital cost and availability
• The influential elements of capital cost • WACC and CAPM • Capital cost VS. availability
10-2
© 2012 Pearson Education, Inc. All rights reserved.
CASE ANALYSIS
Boomtown company intends to acquire National Gaming company. • T: Facilitate capital flow (frequency) • enhance financial situation • A: cost of capital equity of shareholder • (debt rate， price of stock)
(emerging countries)
• 2. rate of interest on risk-free item krf • (basic one, Bond or LIBOR)
• 3. risk premium Km-krf
10-10
© 2012 Pearson Education, Inc. All rights reserved.
Issue S, L Loan fee OPP D I
investment（expected rate of return demanded by investors）
capital cost < = > required rate of return(报酬பைடு நூலகம்，收益率)
• Capital availability
© 2012 Pearson Education, Inc. All rights reserved.
CAPM
Systematic risk
P309
• Ke= krf+(km-krf) βj • •
Ke= expected /required rate of return on equity=risk-adjusted cost of debt Krf=rate of interest on risk-free bonds Km= expected rate of return on the market portfolio of stock βj= coefficient of systematic risk of the firm
10-6
© 2012 Pearson Education, Inc. All rights reserved.
The influential elements of capital cost: MNE VS DE
1.Financial condition
(size, favorable discount, no boundary, policy, interest rate, circulation ) e.g. EU capital market loan rate is low, saving rate is high.
10-11
© 2012 Pearson Education, Inc. All rights reserved.
Case of Trident and Nestle
• P311 • What can you get from these two example? • Internationalized version of CAPM • Traditional domestic CAPM
10-4
© 2012 Pearson Education, Inc. All rights reserved.
Concept
• Capital cost：required rate of return (lowest) after
cost for acquiring and utilizing capital
• P315, p326
10-7 © 2012 Pearson Education, Inc. All rights reserved.
CAPTIAL COST CALCUATION: WACC
• P309 capital component
• (debt, preference stock, common stock, equity reserve )
• Exhibit 12.1 p308
• Local market access VS. global market access
• What can you conclude from this picture?
• • • •
if Segmented capital market Illiquidity market How to achieve its goal?
• 2.Stability of return
(diversification)
• 3.risk level(complicated situation, political risk, agency
cost, asymmetric information)
MNE VS DE • Conclusion :
• Debt cost (measured P310) • A: interest can offset tax, save cost, WACC • D: size of debt , interest ,RISK , COST
Capital cost
• • • •
Optimal Capital Structure point A Debt proportion
10-9
© 2012 Pearson Education, Inc. All rights reserved.
Capital cost in various countries
• 1. cost of equity ke • opportunity cost • Investment opportunity
10-5
Degree of difficulty to finance Channel of source(network) Total amount Quality of capital
© 2012 Pearson Education, Inc. All rights reserved.
10-12
© 2012 Pearson Education, Inc. All rights reserved.
• Capital Budget of acceptable item
10-3 © 2012 Pearson Education, Inc. All rights reserved.
Background information
Macdougall model： the difference of interest rates and expected profit margin nature of capital (p) principle: abundant to deficient low profit margin to high profit margin Residual cost frequency, return
• K
WACC=
Ke E/V + Kd (1-t) D/V
• Ke • Kd t D V
10-8
cost of equity before tax cost of debt marginal tax rate market value of firm’s equity market value of firm’s debt
Chapter 12
The global cost and availability of capital
sissi
Target
• Concepts of capital cost and availability
• The influential elements of capital cost • WACC and CAPM • Capital cost VS. availability
10-2
© 2012 Pearson Education, Inc. All rights reserved.
CASE ANALYSIS
Boomtown company intends to acquire National Gaming company. • T: Facilitate capital flow (frequency) • enhance financial situation • A: cost of capital equity of shareholder • (debt rate， price of stock)
(emerging countries)
• 2. rate of interest on risk-free item krf • (basic one, Bond or LIBOR)
• 3. risk premium Km-krf
10-10
© 2012 Pearson Education, Inc. All rights reserved.
Issue S, L Loan fee OPP D I
investment（expected rate of return demanded by investors）
capital cost < = > required rate of return(报酬பைடு நூலகம்，收益率)
• Capital availability
© 2012 Pearson Education, Inc. All rights reserved.
CAPM
Systematic risk
P309
• Ke= krf+(km-krf) βj • •
Ke= expected /required rate of return on equity=risk-adjusted cost of debt Krf=rate of interest on risk-free bonds Km= expected rate of return on the market portfolio of stock βj= coefficient of systematic risk of the firm
10-6
© 2012 Pearson Education, Inc. All rights reserved.
The influential elements of capital cost: MNE VS DE
1.Financial condition
(size, favorable discount, no boundary, policy, interest rate, circulation ) e.g. EU capital market loan rate is low, saving rate is high.
10-11
© 2012 Pearson Education, Inc. All rights reserved.
Case of Trident and Nestle
• P311 • What can you get from these two example? • Internationalized version of CAPM • Traditional domestic CAPM
10-4
© 2012 Pearson Education, Inc. All rights reserved.
Concept
• Capital cost：required rate of return (lowest) after
cost for acquiring and utilizing capital
• P315, p326
10-7 © 2012 Pearson Education, Inc. All rights reserved.
CAPTIAL COST CALCUATION: WACC
• P309 capital component
• (debt, preference stock, common stock, equity reserve )
• Exhibit 12.1 p308
• Local market access VS. global market access
• What can you conclude from this picture?
• • • •
if Segmented capital market Illiquidity market How to achieve its goal?
• 2.Stability of return
(diversification)
• 3.risk level(complicated situation, political risk, agency
cost, asymmetric information)
MNE VS DE • Conclusion :
• Debt cost (measured P310) • A: interest can offset tax, save cost, WACC • D: size of debt , interest ,RISK , COST
Capital cost
• • • •
Optimal Capital Structure point A Debt proportion
10-9
© 2012 Pearson Education, Inc. All rights reserved.
Capital cost in various countries
• 1. cost of equity ke • opportunity cost • Investment opportunity