财务管理学及财务知识分析(PPT 31页)

Use this formula: kpD P p p$1 $1 1 .1 0 1 00.09 9 0 .0%.
Copyright © 2001 by Harcourt, Inc.
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10 - 8
Picture of Preferred Stock
0
kp = ?
10 - 9
Note:
Preferred dividends are not tax deductible, so no tax adjustment. Just kp.
Nominal kp is used. Our calculation ignores flotation
costs.
Copyright © 2001 by Harcourt, Inc.
Use nominal rate. Flotation costs small.
Ignore.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
10 - 7
What’s the cost of preferred stock? Pp = $111.10; 10%Q; Par = $100.
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10 - 3
Should we focus on before-tax or after-tax capital costs?
Stockholders focus on A-T CFs. Therefore, we should focus on A-T capital costs, i.e., use A-T costs in WACC. Only kd needs adjustment.
Copyright © 2001 by Harcourt, Inc.
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Therefore, preferred often has a lower B-T yield than the B-T yield on debt.
The A-T yield to an investor, and the A-T cost to the issuer, are higher on preferred than on debt. Consistent with higher risk of preferred.
INPUTS OUTPUT
30
-1153.72 60 1000
N I/YR PV PMT FV
5.0% x 2 = kd = 10%
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
Component Cost of Debt
10 - 6
Interest is tax deductible, so kd AT = kd BT(1 – T) = 10%(1 – 0.40) = 6%.
Copyright © 2001 by Harcourt, Inc.
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10 - 11
Why is yield on preferred lower than kd?
Corporations own most preferred stock, because 70% of preferred dividends are nontaxable to corporations.
1
-111.1
2.50
2
...
2.50
2.50
$111.10 =
DQ kPer
=
$2.50 kPer
.
kPer
= $2.50 $111.10
=
ห้องสมุดไป่ตู้
2.25%;
kp(Nom) = 2.25%(4) = 9%.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
10 - 5
A 15-year, 12% semiannual bond sells for $1,153.72. What’s kd?
0
1
i=?
-1,153.72
60
2
...
60
30 60 + 1,000
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10 - 10
Is preferred stock more or less risky to investors than debt?
More risky; company not required to pay preferred dividend.
However, firms try to pay preferred dividend. Otherwise, (1) cannot pay common dividend, (2) difficult to raise additional funds, (3) preferred stockholders may gain control of firm.
Copyright © 2001 by Harcourt, Inc.
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10 - 4
Should we focus on historical (embedded) costs or new (marginal)
costs?
The cost of capital is used primarily to make decisions that involve raising new capital. So, focus on today’s marginal costs (for WACC).
财务管理学及财务知识分析(PPT 31页)
路漫漫其悠远
少壮不努力，老大徒悲伤
10 - 2
What types of capital do firms use?
Debt Preferred stock Common equity:
Retained earnings New common stock
Copyright © 2001 by Harcourt, Inc.