第十六章资本结构：债务的运用.ppt
合集下载
相关主题
- 1、下载文档前请自行甄别文档内容的完整性，平台不提供额外的编辑、内容补充、找答案等附加服务。
- 2、"仅部分预览"的文档,不可在线预览部分如存在完整性等问题,可反馈申请退款(可完整预览的文档不适用该条件!)。
- 3、如文档侵犯您的权益，请联系客服反馈,我们会尽快为您处理(人工客服工作时间：9:00-18:30)。
• PV of Bonds Without the Project = $200 • PV of Stocks Without the Project = $0
• PV of Bonds With the Project = $300 / 1.1 = $272.73
• PV of Stocks with the project = $50 / 1.1 - $100 = -$54.55
Agency Cost of Equity 16.6 The Pecking-Order Theory 16.7 Growth and the Debt-Equity Ratio 16.8 Personal Taxes 16.9 How Firms Establish Capital Structure 16.10 Summary and Conclusions
– Suppose our firm paid out a $200 dividend to the shareholders. This leaves the firm insolvent, with nothing for the bondholders, but plenty for the former shareholders.
BV $200 $400 $600
MV $200
$0 $200
Liabilities LT bonds Equity Total
BV $300 $300 $600
MV $200 $0
$200
What happens if the firm is liquidated today?
The bondholders get $200; the shareholders get nothing.
16-6
Selfish Strategy 2: Underinvestment
• Consider a government-sponsored project that guarantees $350 in one period
• Cost of investment is $300 (the firm only has $200 now) so the stockholders will have to supply an additional $100 to finance the project
Probabபைடு நூலகம்lity 10% 90%
Payoff $1,000 $0
Cost of investment is $200 (all the firm’s cash) Required return is 50%
Expected CF from the Gamble = $1000 × 0.10 + $0 = $100
NPV $200 $100 1.50
NPV $133
McGraw-Hill/Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
16-5 Selfish Stockholders Accept Negative NPV Project with Large Risks
McGraw-Hill/Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
16-8
Selfish Strategy 3: Milking the Property
• Liquidating dividends
• PV of Bonds With the Gamble = $30 / 1.5 = $20 • PV of Stocks With the Gamble = $70 / 1.5 = $47
McGraw-Hill/Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
16-3
Balance Sheet for a Company in Distress
Assets Cash Fixed Asset Total
• Required return is 10%
NPV $300 $350 1.10
NPV $18.18
•Should we accept or reject?
McGraw-Hill/Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
16-11 16.4 Integration of Tax Effects and Financial Distress Costs
• Indirect Costs
– Impaired ability to conduct business (e.g., lost sales) – Agency Costs
• Selfish strategy 1: Incentive to take large risks • Selfish strategy 2: Incentive toward underinvestment • Selfish Strategy 3: Milking the property
• Expected CF from the Gamble
– To Bondholders = $300 × 0.10 + $0 = $30 – To Stockholders = ($1000 - $300) × 0.10 + $0 = $70
• PV of Bonds Without the Gamble = $200 • PV of Stocks Without the Gamble = $0
16-7 Selfish Stockholders Forego Positive NPV Project
• Expected CF from the government sponsored project: – To Bondholder = $300 – To Stockholder = ($350 - $300) = $50
McGraw-Hill/Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
16-2
16.2 Description of Costs
• Direct Costs
– Legal and administrative costs (tend to be a small percentage of firm value).
McGraw-Hill/Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
16-12 Integration of Tax Effects and Financial Distress Costs
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
16-10
Protective Covenants
• Agreements to protect bondholders • Negative covenant: Thou shalt not:
McGraw-Hill/Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
16-1
16.1 Costs of Financial Distress
• Bankruptcy risk versus bankruptcy cost. • The possibility of bankruptcy has a negative effect
16-0
Chapter Outline
16.1 Costs of Financial Distress 16.2 Description of Costs 16.3 Can Costs of Debt Be Reduced? 16.4 Integration of Tax Effects and Financial Distress Costs 16.5 Shirking, Perquisites, and Bad Investments: A Note on
McGraw-Hill/Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
16-4
Selfish Strategy 1: Take Large Risks
The Gamble Win Big Lose Big
• There is a trade-off between the tax advantage of debt and the costs of financial distress.
• It is difficult to express this with a precise and rigorous formula.
– Pay dividends beyond specified amount. – Sell more senior debt & amount of new debt is limited. – Refund existing bond issue with new bonds paying
lower interest rate. – Buy another company’s bonds. • Positive covenant: Thou shall: – Use proceeds from sale of assets for other assets. – Allow redemption in event of merger or spinoff. – Maintain good condition of assets. – Provide audited financial information.
– Such tactics often violate bond indentures.
• Increase perquisites to shareholders and/or management
McGraw-Hill/Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
16-9
16.3 Can Costs of Debt Be Reduced?
• Protective Covenants • Debt Consolidation:
– If we minimize the number of parties, contracting costs fall.
McGraw-Hill/Irwin
on the value of the firm. • However, it is not the risk of bankruptcy itself that
lowers value. • Rather it is the costs associated with bankruptcy. • It is the stockholders who bear these costs.
• PV of Bonds With the Project = $300 / 1.1 = $272.73
• PV of Stocks with the project = $50 / 1.1 - $100 = -$54.55
Agency Cost of Equity 16.6 The Pecking-Order Theory 16.7 Growth and the Debt-Equity Ratio 16.8 Personal Taxes 16.9 How Firms Establish Capital Structure 16.10 Summary and Conclusions
– Suppose our firm paid out a $200 dividend to the shareholders. This leaves the firm insolvent, with nothing for the bondholders, but plenty for the former shareholders.
BV $200 $400 $600
MV $200
$0 $200
Liabilities LT bonds Equity Total
BV $300 $300 $600
MV $200 $0
$200
What happens if the firm is liquidated today?
The bondholders get $200; the shareholders get nothing.
16-6
Selfish Strategy 2: Underinvestment
• Consider a government-sponsored project that guarantees $350 in one period
• Cost of investment is $300 (the firm only has $200 now) so the stockholders will have to supply an additional $100 to finance the project
Probabபைடு நூலகம்lity 10% 90%
Payoff $1,000 $0
Cost of investment is $200 (all the firm’s cash) Required return is 50%
Expected CF from the Gamble = $1000 × 0.10 + $0 = $100
NPV $200 $100 1.50
NPV $133
McGraw-Hill/Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
16-5 Selfish Stockholders Accept Negative NPV Project with Large Risks
McGraw-Hill/Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
16-8
Selfish Strategy 3: Milking the Property
• Liquidating dividends
• PV of Bonds With the Gamble = $30 / 1.5 = $20 • PV of Stocks With the Gamble = $70 / 1.5 = $47
McGraw-Hill/Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
16-3
Balance Sheet for a Company in Distress
Assets Cash Fixed Asset Total
• Required return is 10%
NPV $300 $350 1.10
NPV $18.18
•Should we accept or reject?
McGraw-Hill/Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
16-11 16.4 Integration of Tax Effects and Financial Distress Costs
• Indirect Costs
– Impaired ability to conduct business (e.g., lost sales) – Agency Costs
• Selfish strategy 1: Incentive to take large risks • Selfish strategy 2: Incentive toward underinvestment • Selfish Strategy 3: Milking the property
• Expected CF from the Gamble
– To Bondholders = $300 × 0.10 + $0 = $30 – To Stockholders = ($1000 - $300) × 0.10 + $0 = $70
• PV of Bonds Without the Gamble = $200 • PV of Stocks Without the Gamble = $0
16-7 Selfish Stockholders Forego Positive NPV Project
• Expected CF from the government sponsored project: – To Bondholder = $300 – To Stockholder = ($350 - $300) = $50
McGraw-Hill/Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
16-2
16.2 Description of Costs
• Direct Costs
– Legal and administrative costs (tend to be a small percentage of firm value).
McGraw-Hill/Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
16-12 Integration of Tax Effects and Financial Distress Costs
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
16-10
Protective Covenants
• Agreements to protect bondholders • Negative covenant: Thou shalt not:
McGraw-Hill/Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
16-1
16.1 Costs of Financial Distress
• Bankruptcy risk versus bankruptcy cost. • The possibility of bankruptcy has a negative effect
16-0
Chapter Outline
16.1 Costs of Financial Distress 16.2 Description of Costs 16.3 Can Costs of Debt Be Reduced? 16.4 Integration of Tax Effects and Financial Distress Costs 16.5 Shirking, Perquisites, and Bad Investments: A Note on
McGraw-Hill/Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
16-4
Selfish Strategy 1: Take Large Risks
The Gamble Win Big Lose Big
• There is a trade-off between the tax advantage of debt and the costs of financial distress.
• It is difficult to express this with a precise and rigorous formula.
– Pay dividends beyond specified amount. – Sell more senior debt & amount of new debt is limited. – Refund existing bond issue with new bonds paying
lower interest rate. – Buy another company’s bonds. • Positive covenant: Thou shall: – Use proceeds from sale of assets for other assets. – Allow redemption in event of merger or spinoff. – Maintain good condition of assets. – Provide audited financial information.
– Such tactics often violate bond indentures.
• Increase perquisites to shareholders and/or management
McGraw-Hill/Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
16-9
16.3 Can Costs of Debt Be Reduced?
• Protective Covenants • Debt Consolidation:
– If we minimize the number of parties, contracting costs fall.
McGraw-Hill/Irwin
on the value of the firm. • However, it is not the risk of bankruptcy itself that
lowers value. • Rather it is the costs associated with bankruptcy. • It is the stockholders who bear these costs.