公司理财(双语)8 Cost of Capital
(完整word版)公司理财(英文版)题库8
CHAPTER 8Making Capital Investment Decisions I. DEFINITIONSINCREMENTAL CASH FLOWSa 1. The changes in a firm’s future cash flows that are a direct consequence of accepting aproject are called _____ cash flows.a. incrementalb. stand-alonec. after-taxd. net present valuee. erosionDifficulty level: EasyEQUIVALENT ANNUAL COSTe 2. The annual annuity stream of payments with the same present value as a project’s costsis called the project’s _____ cost.a. incrementalb. sunkc. opportunityd. erosione. equivalent annualDifficulty level: EasySUNK COSTSc 3. A cost that has already been paid, or the liability to pay has already been incurred, isa(n):a. salvage value expense.b. net working capital expense.c. sunk cost.d. opportunity cost.e. erosion cost.Difficulty level: EasyOPPORTUNITY COSTSd 4. The most valuable investment given up if an alternative investment is chosen is a(n):a. salvage value expense.b. net working capital expense.c. sunk cost.d. opportunity cost.e. erosion cost.Difficulty level: EasyEROSION COSTSe 5. The cash flows of a new project that come at the expense of a firm’s existing projectsare called:a. salvage value expenses.b. net working capital expenses.c. sunk costs.d. opportunity costs.e. erosion costs.Difficulty level: EasyPRO FORMA FINANCIAL STATEMENTSa 6. A pro forma financial statement is one that:a. projects future years’ operations.b. is expressed as a percentage of the total assets of the firm.c. is expressed as a percentage of the total sales of the firm.d. is expressed relative to a chosen base year’s financial statement.e. reflects the past and current operations of the firm.Difficulty level: EasyMACRS DEPRECIATIONb 7. The depreciation method currently allowed under US tax law governing the acceleratedwrite-off of property under various lifetime classifications is called _____ depreciation.a. FIFOb. MACRSc. straight-lined. sum-of-years digitse. curvilinearDifficulty level: EasyDEPRECIATION TAX SHIELDc 8. The cash flow tax savings generated as a result of a firm’s tax-deductible depreciationexpense is called the:a. after-tax depreciation savings.b. depreciable basis.c. depreciation tax shield.d. operating cash flow.e. after-tax salvage value.Difficulty level: EasyCASH FLOWd 9. The cash flow from projects for a company is computed as the:a. net operating cash flow generated by the project, less any sunk costs and erosion costs.b. sum of the incremental operating cash flow and after-tax salvage value of the project.c. net income generated by the project, plus the annual depreciation expense.d. sum of the incremental operating cash flow, capital spending, and net working capitalexpenses incurred by the project.e. sum of the sunk costs, opportunity costs, and erosion costs of the project.Difficulty level: MediumII. CONCEPTSPRO FORMA INCOME STATEMENTb 10. The pro forma income statement for a cost reduction project:a. will reflect a reduction in the sales of the firm.b. will generally reflect no incremental sales.c. has to be prepared reflecting the total sales and expenses of a firm.d. cannot be prepared due to the lack of any project related sales.e. will always reflect a negative project operating cash flow.Difficulty level: EasyINCREMENTAL CASH FLOWb 11. One purpose of identifying all of the incremental cash flows related to a proposedproject is to:a. isolate the total sunk costs so they can be evaluated to determine if the project willadd value to the firm.b. eliminate any cost which has previously been incurred so that it can be omitted fromthe analysis of the project.c. make each project appear as profitable as possible for the firm.d. include both the proposed and the current operations of a firm in the analysis of theproject.e. identify any and all changes in the cash flows of the firm for the past year so they canbe included in the analysis.Difficulty level: MediumINCREMENTAL CASH FLOWe 12. Which of the following are examples of an incremental cash flow?I. an increase in accounts receivableII. a decrease in net working capitalIII. an increase in taxesIV. a decrease in the cost of goods solda. I and III onlyb. III and IV onlyc. I and IV onlyd. I, III, and IV onlye. I, II, III, and IVDifficulty level: MediumINCREMENTAL CASH FLOWc 13. Which one of the following is an example of an incremental cash flow?a. the annual salary of the company president which is a contractual obligationb. the rent on a warehouse which is currently being utilizedc. the rent on some new machinery that is required for an upcoming projectd. the property taxes on the currently owned warehouse which has been sitting idle butis going to be utilized for a new projecte. the insurance on a company-owned building which will be utilized for a new projectDifficulty level: MediumINCREMENTAL COSTSd 14. Project analysis is focused on _____ costs.a. sunkb. totalc. variabled. incrementale. fixedDifficulty level: MediumSUNK COSTc 15. Sunk costs include any cost that:a. will change if a project is undertaken.b. will be incurred if a project is accepted.c. has previously been incurred and cannot be changed.d. is paid to a third party and cannot be refunded for any reason whatsoever.e. will occur if a project is accepted and once incurred, cannot be recouped.Difficulty level: EasySUNK COSTd 16. You spent $500 last week fixing the transmission in your car. Now, the brakes areacting up and you are trying to decide whether to fix them or trade the car in for anewer model. In analyzing the brake situation, the $500 you spent fixing thetransmission is a(n) _____ cost.a. opportunityb. fixedc. incrementald. sunke. relevantDifficulty level: EasyEROSIONb 17. Erosion can be explained as the:a. additional income generated from the sales of a newly added product.b. loss of current sales due to a new project being implemented.c. loss of revenue due to employee theft.d. loss of revenue due to customer theft.e. loss of cash due to the expenses required to fix a parking lot after a heavy rain storm.Difficulty level: EasyEROSIONa 18. Which of the following are examples of erosion?I. the loss of sales due to increased competition in the product marketII. the loss of sales because your chief competitor just opened a store across the street from your storeIII. the loss of sales due to a new product which you recently introducedIV. the loss of sales due to a new product recently introduced by your competitora. III onlyb. III and IV onlyc. I, III and IV onlyd. II and IV onlye. I, II, III, and IVDifficulty level: MediumTYPES OF COSTSd 19. Which of the following should be included in the analysis of a project?I. sunk costsII. opportunity costsIII. erosion costsIV. incremental costsa. I and II onlyb. III and IV onlyc. II and IV onlyd. II, III, and IV onlye. I, II, and IV onlyDifficulty level: MediumNET WORKING CAPITALd 20. All of the following are anticipated effects of a proposed project. Which of theseshould be included in the initial project cash flow related to net working capital?I. an inventory decrease of $5,000II. an increase in accounts receivable of $1,500III. an increase in fixed assets of $7,600IV. a decrease in accounts payable of $2,100a. I and II onlyb. I and III onlyc. II and IV onlyd. I, II, and IV onlye. I, II, III, and IVDifficulty level: MediumNET WORKING CAPITALa 21. Changes in the net working capital:a. can affect the cash flows of a project every year of the project’s life.b. only affect the initial cash flows of a project.c. are included in project analysis only if they represent cash outflows.d. are generally excluded from project analysis due to their irrelevance to the totalproject.e. affect the initial and the final cash flows of a project but not the cash flows of themiddle years.Difficulty level: MediumNET WORKING CAPITALc 22. Which one of the following will decrease net working capital of a firm?a. a decrease in accounts payableb. an increase in inventoryc. a decrease in accounts receivabled. an increase in the firm’s checking account balancee. a decrease in fixed assetsDifficulty level: EasyNET WORKING CAPITALd 23. Net working capital:a. can be ignored in project analysis because any expenditure is normally recouped by theend of the project.b. requirements generally, but not always, create a cash inflow at the beginning of aproject.c. expenditures commonly occur at the end of a project.d. is frequently affected by the additional sales generated by a new project.e. is the only expenditure where at least a partial recovery can be made at the end of aproject.Difficulty level: EasyMACRSd 24. A company which uses the MACRS system of depreciation:a. will have equal depreciation costs each year of an asset’s life.b. will expense the cost of nonresidential real estate over a period of 7 years.c. can depreciate the cost of land, if they so desire.d. will write off the entire cost of an asset over the asset’s class life.e. cannot expense any of the cost of a new asset during the first year of the asset’s life.Difficulty level: EasyMACRSa 25. Bet ‘r Bilt Toys just purchased some MACRS 5-year property at a cost of $230,000.Which of the following will correctly give you the book value of this equipment at theend of year 2?MACRS 5-year propertyYear Rate1 20.00%2 32.00%3 19.20%4 11.52%5 11.52%6 5.76%I. 52% of the asset costII. 48% of the asset costIII. 68% of 80% of the asset costIV. the asset cost, minus 20% of the asset cost, minus 32% of 80% of the asset costa. II onlyb. III and IV onlyc. I and III onlyd. II and IV onlye. I, II, III, and IVDifficulty level: EasyMACRSe 26. Will Do, Inc. just purchased some equipment at a cost of $650,000. What is theproper methodology for computing the depreciation expense for year 3 if theequipment is classified as 5-year property for MACRS?MACRS 5-year propertyYear Rate1 20.00%2 32.00%3 19.20%4 11.52%5 11.52%6 5.76%a. $650,000 ⨯ (1-.20) ⨯ (1-.32) ⨯ (1-.192)b. $650,000 ⨯ (1-.20) ⨯ (1-.32)c. $650,000 ⨯ (1+.20) ⨯ (1+.32) ⨯ (1+.192)d. $650,000 ⨯ (1-.192)e. $650,000 ⨯ .192Difficulty level: MediumBOOK VALUEd 27. The book value of an asset is primarily used to compute the:a. annual depreciation tax shield.b. amount of cash received from the sale of an asset.c. amount of tax saved annually due to the depreciation expense.d. amount of tax due on the sale of an asset.e. change in depreciation needed to reflect the market value of the asset.Difficulty level: EasySALVAGE VALUEc 28. The salvage value of an asset creates an after-tax cash inflow to the firm in an amountequal to the:a. sales price of the asset.b. sales price minus the book value.c. sales price minus the tax due based on the sales price minus the book value.d. sales price plus the tax due based on the sales price minus the book value.e. sales price plus the tax due based on the book value minus the sales price.Difficulty level: EasySALVAGE VALUEe 29. The pre-tax salvage value of an asset is equal to the:a. book value if straight-line depreciation is used.b. book value if MACRS depreciation is used.c. market value minus the book value.d. book value minus the market value.e. market value.Difficulty level: EasyPROJECT OCFa 30. A project’s operating cash flow will increase when:a. the depreciation expense increases.b. the sales projections are lowered.c. the interest expense is lowered.d. the net working capital requirement increases.e. the earnings before interest and taxes decreases.Difficulty level: EasyPROJECT CASH FLOWSc 31. The cash flows of a project should:a. be computed on a pre-tax basis.b. include all sunk costs and opportunity costs.c. include all incremental costs, including opportunity costs.d. be applied to the year when the related expense or income is recognized by GAAP.e. include all financing costs related to new debt acquired to finance the project.Difficulty level: EasyPROJECT OCFa 32. Which of the following are correct methods for computing the operating cash flow ofa project assuming that the interest expense is equal to zero?I. EBIT + Depreciation - TaxesII. EBIT + Depreciation + TaxesIII. Net Income + DepreciationIV. (Sales – Costs) ⨯ (Taxes + Depreciation) ⨯ (1-Taxes)a. I and III onlyb. II and IV onlyc. II and III onlyd. I, III, and IV onlye. II, III, and IV onlyDifficulty level: MediumBOTTOM-UP OCFb 33. The bottom-up approach to computing the operating cash flow applies only when:a. both the depreciation expense and the interest expense are equal to zero.b. the interest expense is equal to zero.c. the project is a cost-cutting project.d. no fixed assets are required for the project.e. taxes are ignored and the interest expense is equal to zero.Difficulty level: MediumTOP-DOWN OCFa 34. The top-down approach to computing the operating cash flow:a. ignores all noncash items.b. applies only if a project produces sales.c. can only be used if the entire cash flows of a firm are included.d. is equal to sales - costs - taxes + depreciation.e. includes the interest expense related to a project.Difficulty level: MediumTAX SHIELDd 35. An increase in which one of the following will increase the operating cash flow?a. employee salariesb. office rentc. building maintenanced. equipment depreciatione. equipment rentalDifficulty level: EasyTAX SHIELDc 36. Tax shield refers to a reduction in taxes created by:a. a reduction in sales.b. an increase in interest expense.c. noncash expenses.d. a project’s incremental expenses.e. opportunity costs.Difficulty level: EasyCOST-CUTTINGc 37. A project which is designed to improve the manufacturing efficiency of a firm but willgenerate no additional sales is referred to as a(n) _____ project.a. sunk costb. opportunityc. cost-cuttingd. revenue-cuttinge. revenue-generatingDifficulty level: EasyEQUIVALENT ANNUAL COSTc 38. Toni’s Tools is comparing machines to determine which one to purchase. Themachines sell for differing prices, have differing operating costs, differing machinelives, and will be replaced when worn out. These machines should be compared using:a. net present value only.b. both net present value and the internal rate of return.c. their effective annual costs.d. the depreciation tax shield approach.e. the replacement parts approach.Difficulty level: MediumEQUIVALENT ANNUAL COSTe 39. The equivalent annual cost method is useful in determining:a. the annual operating cost of a machine if the annual maintenance is performed versuswhen the maintenance is not performed as recommended.b. the tax shield benefits of depreciation given the purchase of new assets for a project.c. operating cash flows for cost-cutting projects of equal duration.d. which one of two machines to acquire given equal machine lives but unequal machinecosts.e. which one of two machines to purchase when the machines are mutually exclusive,have different machine lives, and will be replaced once they are worn out.Difficulty level: MediumIII. PROBLEMSRELEVANT CASH FLOWSd 40. Marshall’s & Co. purchased a corner lot in Eglon City five y ears ago at a cost of$640,000. The lot was recently appraised at $810,000. At the time of the purchase, thecompany spent $50,000 to grade the lot and another $4,000 to build a small buildingon the lot to house a parking lot attendant who has overseen the use of the lot for dailycommuter parking. The company now wants to build a new retail store on the site. Thebuilding cost is estimated at $1.2 million. What amount should be used as the initialcash flow for this building project?a. $1,200,000b. $1,840,000c. $1,890,000d. $2,010,000e. $2,060,000Difficulty level: MediumRELEVANT CASH FLOWSe 41. Jamestown Ltd. currently produces boat sails and is considering expanding itsoperations to include awnings for homes and travel trailers. The company owns landbeside its current manufacturing facility that could be used for the expansion. Thecompany bought this land ten years ago at a cost of $250,000. Today, the land isvalued at $425,000. The grading and excavation work necessary to build on the landwill cost $15,000. The company currently has some unused equipment which itcurrently owns valued at $60,000. This equipment could be used for producingawnings if $5,000 is spent for equipment modifications. Other equipment costing$780,000 will also be required. What is the amount of the initial cash flow for thisexpansion project?a. $800,000b. $1,050,000c. $1,110,000d. $1,225,000e. $1,285,000Difficulty level: MediumRELEVANT CASH FLOWSb 42. Wilbert’s, Inc. paid $90,000, in cash, for a piece of equipment three years ago. Lastyear, the company spent $10,000 to update the equipment with the latest technology.The company no longer uses this equipment in their current operations and hasreceived an offer of $50,000 from a firm who would like to purchase it. Wilbert’s isdebating whether to sell the equipment or to expand their operations such that theequipment can be used. When evaluating the expansion option, what value, if any,should Wilbert’s assign to this equipment as an initial cost of the project?a. $40,000b. $50,000c. $60,000d. $80,000e. $90,000Difficulty level: EasyRELEVANT CASH FLOWSa 43. Walks Softly, Inc. sells customized shoes. Currently, they sell 10,000 pairs of shoesannually at an average price of $68 a pair. They are considering adding a lower-pricedline of shoes which sell for $49 a pair. Walks Softly estimates they can sell 5,000 pairsof the lower-priced shoes but will sell 1,000 less pairs of the higher-priced shoes bydoing so. What is the amount of the sales that should be used when evaluating theaddition of the lower-priced shoes?a. $177,000b. $245,000c. $313,000d. $789,000e. $857,000Difficulty level: MediumOPPORTUNITY COSTc 44. Your firm purchased a warehouse for $335,000 six years ago. Four years ago, repairswere made to the building which cost $60,000. The annual taxes on the property are$20,000. The warehouse has a current book value of $268,000 and a market value of$295,000. The warehouse is totally paid for and solely owned by your firm. If thecompany decides to assign this warehouse to a new project, what value, if any, shouldbe included in the initial cash flow of the project for this building?a. $0b. $268,000c. $295,000d. $395,000e. $515,000Difficulty level: EasyOPPORTUNITY COSTd 45. You own a house that you rent for $1,200 a month. The maintenance expenses onthe house average $200 a month. The house cost $89,000 when you purchased itseveral years ago. A recent appraisal on the house valued it at $210,000. The annualproperty taxes are $5,000. If you sell the house you will incur $20,000 in expenses.You are deciding whether to sell the house or convert it for your own use as aprofessional office. What value should you place on this house when analyzing theoption of using it as a professional office?a. $89,000b. $120,000c. $185,000d. $190,000e. $210,000Difficulty level: MediumOPPORTUNITY COSTc 46. Big Joe’s owns a manufacturing facility that is currently sitting idle. The facility islocated on a piece of land that originally cost $129,000. The facility itself cost$650,000 to build. As of now, the book value of the land and the facility are $129,000and $186,500, respectively. Big Joe’s received an offer of $590,000 for the land andfacility last week. They rejected this offer even though they were told that it is areasonable offer in today’s market. If Big Joe’s were to consider using this land andfacility in a new project, what cost, if any, should they include in the project analysis?a. $0b. $315,500c. $590,000d. $650,000e. $779,000Difficulty level: EasyEROSION COSTb 47. Jamie’s Motor Home Sales currently sells 1,000 Class A motor homes, 2,500 Class Cmotor homes, and 4,000 pop-up trailers each year. Jamie is considering adding a mid-range camper and expects that if she does so she can sell 1,500 of them. However, ifthe new camper is added, Jamie expects that her Class A sales will decline to 950 unitswhile the Class C campers decline to 2,200. The sales of pop-ups will not be affected.Class A motor homes sell for an average of $125,000 each. Class C homes are pricedat $39,500 and the pop-ups sell for $5,000 each. The new mid-range camper will sellfor $47,900. What is the erosion cost?a. $6,250,000b. $18,100,000c. $53,750,000d. $93,150,000e. $118,789,500Difficulty level: MediumOCFe 48. Ernie’s E lectrical is evaluating a project which will increase sales by $50,000 andcosts by $30,000. The project will cost $150,000 and be depreciated straight-line to azero book value over the 10 year life of the project. The applicable tax rate is 34%.What is the operating cash flow for this project?a. $3,300b. $5,000c. $8,300d. $13,300e. $18,300Difficulty level: MediumOCFd 49. Kurt’s Kabinets is looking at a project that will require $80,000 in fixed assets andanother $20,000 in net working capital. The project is expected to produce sales of$110,000 with associated costs of $70,000. The project has a 4-year life. The companyuses straight-line depreciation to a zero book value over the life of the project. The taxrate is 35%. What is the operating cash flow for this project?a. $7,000b. $13,000c. $27,000d. $33,000e. $40,000Difficulty level: MediumBOTTOM-UP OCFc 50. Peter’s Boats has sales of $760,000 and a profit margin of 5%. The annualdepreciation expense is $80,000. What is the amount of the operating cash flow if thecompany has no long-term debt?a. $34,000b. $86,400c. $118,000d. $120,400e. $123,900Difficulty level: MediumBOTTOM-UP OCFd 51. Le Place has sales of $439,000, depreciation of $32,000, and net working capital of$56,000. The firm has a tax rate of 34% and a profit margin of 6%. Thefirm has no interest expense. What is the amount of the operating cash flow?a. $49,384b. $52,616c. $54,980d. $58,340e. $114,340Difficulty level: MediumTOP-DOWN OCFb 52. Ben’s Border Café is considering a project which will produce sales of $16,000 andincrease cash expenses by $10,000. If the project is implemented, taxes will increasefrom $23,000 to $24,500 and depreciation will increase from $4,000 to $5,500. Whatis the amount of the operating cash flow using the top-down approach?a. $4,000b. $4,500c. $6,000d. $7,500e. $8,500Difficulty level: MediumTOP-DOWN OCFc 53. Ronnie’s Coffee House i s considering a project which will produce sales of $6,000and increase cash expenses by $2,500. If the project is implemented, taxes willincrease by $1,300. The additional depreciation expense will be $1,000. An initial cashoutlay of $2,000 is required for net working capital. What is the amount of theoperating cash flow using the top-down approach?a. $200b. $1,500c. $2,200d. $3,500e. $4,200Difficulty level: MediumTAX SHIELD OCFc 54. A project will increase sales by $60,000 and cash expenses by $51,000. The projectwill cost $40,000 and be depreciated using straight-line depreciation to a zero bookvalue over the 4-year life of the project. The company has a marginal tax rate of 35%.What is the operating cash flow of the project using the tax shield approach?a. $5,850b. $8,650c. $9,350d. $9,700e. $10,350Difficulty level: MediumDEPRECIATION TAX SHIELDa 55. A project will increase sales by $140,000 and cash expenses by $95,000. The projectwill cost $100,000 and be depreciated using the straight-line method to a zero bookvalue over the 4-year life of the project. The company has a marginal tax rate of 34%.What is the value of the depreciation tax shield?a. $8,500b. $17,000c. $22,500d. $25,000e. $37,750Difficulty level: MediumMACRS DEPRECIATIONd 56. Sun Lee’s Furniture just purchased some fixed assets classified as 5-year property forMACRS. The assets cost $24,000. What is the amount of the depreciation expense forthe third year?MACRS 5-year propertyYear Rate1 20.00%2 32.00%3 19.20%4 11.52%5 11.52%6 5.76%a. $2,304b. $2,507c. $2,765d. $4,608e. $4,800Difficulty level: EasyMACRS DEPRECIATIONa 57. You just purchased some equipment that is classified as 5-year property for MACRS.The equipment cost $67,600. What will the book value of this equipment be at the endof three years should you decide to resell the equipment at that point in time?MACRS 5-year propertyYear Rate1 20.00%2 32.00%3 19.20%4 11.52%5 11.52%6 5.76%a. $19,468.80b. $20,280.20c. $27,040.00d. $48,131.20e. $48,672.00Difficulty level: MediumMACRS DEPRECIATIONd 58. LiCheng’s Enterprises just purchased some fixed assets that are classified as 3-yearproperty for MACRS. The assets cost $1,900. What is the amount of thedepreciation expense for year 2?MACRS 3-year propertyYear Rate1 33.33%2 44.44%3 14.82%4 7.41%a. $562.93b. $633.27c. $719.67d. $844.36e. $1,477.63Difficulty level: MediumMACRS DEPRECIATIONb 59. RP&A, Inc. purchased some fixed assets four years ago at a cost of $19,800. They nolonger need these assets so are going to sell them today at a price of $3,500. The assetsare classified as 5-year property for MACRS. What is the current book value of theseassets?MACRS 5-year propertyYear Rate1 20.00%2 32.00%3 19.20%4 11.52%5 11.52%6 5.76%a. $1,140.48b. $3,421.44c. $3,500.00d. $4,016.67e. $5,702.40Difficulty level: MediumSALVAGE VALUEa 60. You own some equipment which you purchased three years ago at a cost of $135,000.The equipment is 5-year property for MACRS. You are considering selling theequipment today for $82,500. Which one of the following statements is correct if yourtax rate is 34%?MACRS 5-year propertyYear Rate1 20.00%2 32.00%3 19.20%4 11.52%5 11.52%6 5.76%a. The tax due on the sale is $14,830.80.b. The book value today is $8,478.c. The book value today is $64,320.d. The taxable amount on the sale is $38,880.e. You will receive a tax refund of $13,219.20 as a result of this sale.。
公司理财双语8costofcapital
➢The return to an investor is the same as the cost to the company
➢Our cost of capital provides us with an indication of how the market views the risk of our assets
– Not applicable if dividends aren’t growing at a reasonably constant rate
– Extremely sensitive to the estimated growth rate – an increase in g of 1% increases the cost of equity by 1%
– Year Dividend Percent Change
– 2000 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%
➢We need to know the required return for an investment before we can compute the NPV and make a decision about whether or not to take the investment
公司理财中英文课件 (8)
IRR＝16.04%
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3 The Internal Rate of Return Rule: Example 3 Consider the following project:
• 已知某投资项目的有关资料如下表,计算该项目的IRR
年份 现金净流量 0 （20 000） 1 11 800 2 13 240
• • • • • •
NPV=11 800×(P/F ,i,1)＋13 240×(P/F,i,2)-20 000=0 采用逐步测试法： 适用18%进行测试：NPV＝-499 折现率高了 使用16%进行测试：NPV＝9 折现率低了 IRR在16%-18%之间 采用内插法：
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2 The Profitability Index (PI) Rule: Example 3
• 下列关于净现值和现值指数的说法，正确的是（ ）。 A.净现值反映投资的效益 B.现值指数反映投资的效率 C.现值指数消除了不同项目间投资额的差异 D.现值指数消除了不同项目间项目期限的差异 • 『正确答案』ABC
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• 7 The Profitability Index (PI) Rule: Example 1
例：某公司有以下投资机会, 计算PI.
项目 1
C0 -20
C1 70
C2 10
现金流量的现值 盈利指数 （12% ） 70.5 3.53
净现值 50.5
70.5/20=3.53
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2 The Profitability Index (PI) Rule: Example 2
• 有甲乙两个投资项目，有关资料如下：
投资额 现金流入现值 （现金流出的现值）
公司理财第二版答案英文版
Company Financial Management Second Edition Answer (EnglishVersion)IntroductionIn this document, we present the answers to the questions and exercises in the second edition of the Company Financial Management textbook. This comprehensive guide aims to provide a better understanding of financial management principles and practices for companies.Chapter 1: Introduction to Financial ManagementQuestion 1: Define financial management and explain its significance for businesses.Financial management refers to the process of planning, organizing, controlling, and monitoring a company’s financial resources to achieve its goals and objectives. It involves making strategic financial decisions that optimize the use of funds and contribute to the long-term success of the business. Financial management is essential for businesses as it allows them to:•Allocate resources efficiently•Minimize financial risks•Maximize profitability and shareholder value•Make informed investment decisions•Ensure regulatory complianceQuestion 2: Describe the three primary areas of financial management.The three primary areas of financial management are:1.Capital Budgeting: This involves evaluating andselecting the best long-term investment opportunities that align with the company’s goa ls. It includes analyzing thepotential returns, risks, and cash flows associated with each investment project.2.Capital Structure: Capital structure refers to themix of debt and equity used to finance a company’soperations. Financial managers need to determine theoptimal capital structure that balances the cost of capitaland the risk of the business. This decision affects thecompany’s ability to raise funds and its overall financialstability.3.Working Capital Management: Working capitalmanagement focu ses on managing the company’s short-term assets and liabilities to ensure smooth businessoperations. It includes managing cash flow, inventory,accounts receivable, and accounts payable effectively tomaintain a healthy liquidity position.Question 3: Explain the goal of financial management.The goal of financial management is to maximize shareholder wealth or value. Financial managers aim to make decisions that increase the market value of the company’sshares and generate higher returns for shareholders. This objective is accomplished by making sound financial decisions, such as investing in profitable projects, optimizing the capital structure, and efficiently managing working capital.Chapter 2: Financial Statements and AnalysisExercise 1: Analyzing Financial StatementsUsing the financial statements for Company XYZ provided below, answer the following questions:Income Statement:Year 1Year 2Revenue$500,000$600,000Expenses$300,000$350,000Net Income$200,000$250,000Balance Sheet:Year 1Year 2Assets$800,000$900,000Liabilities$200,000$250,000Equity$600,000$650,000a)Calculate the net profit margin for Year 1 and Year 2.Solution:Net Profit Margin (Year 1) = Net Income (Year 1) / Revenue (Year 1) * 100 = $200,000 / $500,000 * 100 = 40%Net Profit Margin (Year 2) = Net Income (Year 2) / Revenue (Year 2) * 100 = $250,000 / $600,000 * 100 = 41.67%b)Determine the return on equity (ROE) for Year 1 andYear 2.Solution:Return on Equity (Year 1) = Net Income (Year 1) / Equity (Year 1) * 100 = $200,000 / $600,000 * 100 = 33.33%Return on Equity (Year 2) = Net Income (Year 2) / Equity (Year 2) * 100 = $250,000 / $650,000 * 100 = 38.46%c)Calculate the current ratio for Year 1 and Year 2.Solution:Current Ratio (Year 1) = Assets (Year 1) / Liabilities (Year 1) = $800,000 / $200,000 = 4Current Ratio (Year 2) = Assets (Year 2) / Liabilities (Year 2) = $900,000 / $250,000 = 3.6ConclusionIn this document, we provided the answers to selected questions and exercises from the second edition of the Company Financial Management textbook. These answers should help readers enhance their understanding of financial management principles and practices for companies. It is important to note that this document covers only a fraction of the content presented in the textbook and can be used as a supplementary resource for further study.。
公司理财课后习题及答案chapter12estimatingthecostofcapital
Corporate Finance, 3e (Berk/DeMarzo)Chapter 12 Estimating the Cost of CapitalThe Equity Cost of CapitalUse the following information to answer the question(s) below.Assume that the risk-free rate of interest is 3% and you estimate the market's expected return to be 9%.1) Which firm has the most total riskA) EenieB) MeenieC) MineyD) MoeAnswer: CExplanation: C) Total risk is measured using volatility and Miney has the highest volatility, hence the most total risk.Diff: 1Section: The Equity Cost of CapitalSkill: Analytical2) Which firm has the least market riskA) EenieB) MeenieC) MineyD) MoeAnswer: AExplanation: A) Market risk is measured using beta and Eenie has the lowest beta, hence the lowest market risk.Diff: 1Section: The Equity Cost of CapitalSkill: Analytical3) Which firm has the highest cost of equity capitalA) EenieB) MeenieC) MineyD) MoeAnswer: DExplanation: D) Cost of capital is measured using the CAPM and is a linear function of beta. Therefore the firm with the highest beta (Moe) has the highest cost of equity capital.Diff: 1Section: The Equity Cost of CapitalSkill: Analytical4) The equity cost of capital for "Miney" is closest to:A) %B) %C) %D) %Answer: CExplanation: C) r Miney = 3% + (9% - 3%) = %Diff: 1Section: The Equity Cost of CapitalSkill: Analytical5) The equity cost of capital for "Meenie" is closest to:A) %B) %C) %D) %Answer: BExplanation: B) r Meenie = 3% + (9% - 3%) = %Diff: 1Section: The Equity Cost of CapitalSkill: Analytical6) The risk premium for "Meenie" is closest to:A) %B) %C) %D) %Answer: AExplanation: A) risk premium Meenie = (9% - 3%) = % Diff: 2Section: The Equity Cost of CapitalSkill: AnalyticalThe Market PortfolioUse the following information to answer the question(s) below.Suppose all possible investment opportunities in the world are limited to the four stocks list in the table below:1) The weight on Taggart Transcontinental stock in the market portfolio is closest to:A) 15%B) 20%C) 25%D) 30%Answer: BExplanation: B)Section: The Market Portfolio Skill: Analytical2) The weight on Wyatt Oil stock in the market portfolio is closest to:A) 15%B) 20%C) 25%D) 30%Answer: AExplanation: A)Section: The Market PortfolioSkill: Analytical3) Suppose that you are holding a market portfolio and you have invested $9,000 in Rearden Metal. The amount that you have invested in Nielson Motors is closest to:A) $6,000B) $7,715C) $9,000D) $10,500Answer: DExplanation: D)Calculations B × C D/1950Stock Price perShareNumber of SharesOutstanding(Millions)MarketCap WeightTaggart Transcontinental$25$Rearden Metal$45$Wyatt Oil$10$Nielson Motors$26$Total$Amount Nielson = × Amount Rearden = × $9,000 = $10,500 Diff: 2Section: The Market PortfolioSkill: Analytical4) Suppose that you are holding a market portfolio and you have invested $9,000 in Rearden Metal. The amount that you have invested in Taggart Transcontinental is closest to:A) $4,500B) $6,000C) $7,715D) $9,000Answer: BExplanation: B)Calculations B × C D/1950Stock Price perShareNumber of SharesOutstanding(Millions)MarketCap WeightTaggart Transcontinental$25$Rearden Metal$45$Wyatt Oil$10$Nielson Motors$26$Total$Amount Nielson = × Amount Rearden = × $9,000 = $6,000Diff: 2Section: The Market PortfolioSkill: Analytical5) Suppose that you have invested $30,000 invested in the market portfolio. Then the amount that you have invested in Wyatt Oil is closest to:A) $4,500B) $6,000C) $7,715D) $9,000Answer: AExplanation: A)Amount WO = Weight WO × Amount Market= .15 × $30,000 = $4,500Diff: 2Section: The Market PortfolioSkill: Analytical6) Suppose that you have invested $30,000 in the market portfolio. Then the number of shares of Rearden Metal that you hold is closest to:A) 450 sharesB) 700 sharesC) 1,400 sharesD) 2,300 sharesAnswer: BExplanation: B)Calculations B × C D/1950Stock Price perShareNumber of SharesOutstanding(Millions)MarketCap WeightTaggart Transcontinental$25$ Rearden Metal$45$ Wyatt Oil$10$ Nielson Motors$26$Total$ Shares RM = = = sharesDiff: 2Section: The Market PortfolioSkill: Analytical7) Suppose that you have invested $30,000 in the market portfolio. Then the number of shares of Wyatt Oil that you hold is closest to:A) 150 sharesB) 300 sharesC) 350 sharesD) 450 sharesAnswer: AExplanation: A)Calculations B × C D/1950Stock Price perShareNumber of SharesOutstanding(Millions)MarketCap WeightTaggart Transcontinental$25$ Rearden Metal$45$ Wyatt Oil$10$ Nielson Motors$26$Total$ Shares WO = = = sharesDiff: 2Section: The Market PortfolioSkill: Analyticalin Taggart Transcontinental. The number of shares of Wyatt Oil that you hold is closest to:A) 90 sharesB) 460 sharesC) 615 sharesD) 770 sharesAnswer: BExplanation: B)Calculations B × C D/1950Stock Price perShareNumber of SharesOutstanding(Millions)MarketCap WeightTaggart Transcontinental$25$ Rearden Metal$45$ Wyatt Oil$10$ Nielson Motors$26$Total$= = sharesDiff: 2Section: The Market PortfolioSkill: Analyticalin Taggart Transcontinental. The number of shares of Rearden Metal that you hold is closest to:A) 780 sharesB) 925 sharesC) 1,730 sharesD) 2,075 sharesAnswer: BExplanation: B)Calculations B × C D/1950Stock Price perShareNumber of SharesOutstanding(Millions)MarketCap WeightTaggart Transcontinental$25$Rearden Metal$45$Wyatt Oil$10$Nielson Motors$26$Total$= = 2, sharesDiff: 2Section: The Market PortfolioSkill: Analytical10) Suppose that you have invested $100,000 invested in the market portfolio and that the stock price of Taggart Transcontinental suddenly drops to $ per share.Which of the following trades would you need to make in order to maintain your investment in the market portfolio:1. Buy approximately 1,140 shares of Taggart Transcontinental2. Sell approximately 256 shares of Rearden Metal3. Sell approximately 57 shares of Wyatt Oil4. Sell approximately 148 shares of Nielson MotorsA) 1 onlyB) 2 onlyC) 2, 3, and 4 onlyD) 1, 2, 3, and 4E) None of the aboveAnswer: EExplanation: E) There is no need to rebalance your portfolio. As an investor, you still hold the market portfolio and therefore there are no trades needed. Diff: 3Section: The Market PortfolioSkill: AnalyticalUse the following information to answer the question(s) below.Suppose that Merck (MRK) stock is trading for $ per share with billion shares outstanding while Boeing (BA) has million shares outstanding and a market capitalization of $ billion. Assume that you hold the market portfolio.11) Boeing's stock price is closest to:A) $B) $C) $D) $Answer: CExplanation: C) Price BA = = = $Diff: 1Section: The Market PortfolioSkill: Analytical12) Merck's market capitalization is closest to:A) $ billionB) $ billionC) $ billionD) $ billionAnswer: BExplanation: B) Market Cap = Price × shares outstanding = $ × 2,110 = $77,437 millionDiff: 1Section: The Market PortfolioSkill: Analytical13) If you hold 1,000 shares of Merck, then the number of shares of Boeing that you hold is closest to:A) 240 sharesB) 330 sharesC) 510 sharesD) 780 sharesAnswer: BExplanation: B) Shares BA== = sharesDiff: 3Section: The Market PortfolioSkill: Analytical14) Which of the following statements is FALSEA) All investors should demand the same efficient portfolio of securities in the same proportions.B) The Capital Asset Pricing Model (CAPM) allows corporate executives to identify the efficient portfolio (of risky assets) by using knowledge of the expected return of each security.C) If investors hold the efficient portfolio, then the cost of capital for any investment project is equal to its required return calculated using its beta with the efficient portfolio.D) The CAPM identifies the market portfolio as the efficient portfolio. Answer: BDiff: 1Section: The Market PortfolioSkill: Conceptual15) Which of the following statements is FALSEA) If investors have homogeneous expectations, then each investor will identify the same portfolio as having the highest Sharpe ratio in the economy.B) Homogeneous expectations are when all investors have the same estimates concerning future investments and returns.C) There are many investors in the world, and each must have identical estimates of the volatilities, correlations, and expected returns of the available securities.D) The combined portfolio of risky securities of all investors must equal the efficient portfolio.Answer: CDiff: 1Section: The Market PortfolioSkill: Conceptual16) Which of the following statements is FALSEA) If some security were not part of the efficient portfolio, then every investor would want to own it, and demand for this security would increase causing its expected return to fall until it is no longer an attractive investment.B) The efficient portfolio, the portfolio that all investors should hold, must be the same portfolio as the market portfolio of all risky securities.C) Because every security is owned by someone, the sum of all investors' portfolios must equal the portfolio of all risky securities available in the market.D) If all investors demand the efficient portfolio, and since the supply of securities is the market portfolio, then two portfolios must coincide. Answer: ADiff: 2Section: The Market PortfolioSkill: Conceptual17) Which of the following statements is FALSEA) The market portfolio contains more of the smallest stocks and less of the larger stocks.B) For the market portfolio, the investment in each security is proportional to its market capitalization.C) Because the market portfolio is defined as the total supply of securities, the proportions should correspond exactly to the proportion of the total market that each security represents.D) Market capitalization is the total market value of the outstanding shares of a firm.Answer: ADiff: 1Section: The Market PortfolioSkill: Conceptual18) Which of the following statements is FALSEA) A value-weighted portfolio is an equal-ownership portfolio: We hold an equal fraction of the total number of shares outstanding of each security in the portfolio.B) When buying a value-weighted portfolio, we end up purchasing the same percentage of shares of each firm.C) To maintain a value-weighted portfolio, we do not need to trade securities and rebalance the portfolio unless the number of shares outstanding of some security changes.D) In a value weighted portfolio the fraction of money invested in any security corresponds to its share of the total number of shares outstanding of all securitiesin the portfolio.Answer: DDiff: 1Section: The Market PortfolioSkill: Conceptual19) Which of the following statements is FALSEA) The most familiar stock index in the United States is the Dow Jones Industrial Average (DJIA).B) A portfolio in which each security is held in proportion to its market capitalization is called a price-weighted portfolio.C) The Dow Jones Industrial Average (DJIA) consists of a portfolio of 30 large industrial stocks.D) The Dow Jones Industrial Average (DJIA) is a price-weighted portfolio. Answer: BExplanation: B) A portfolio in which each security is held in proportion to its market capitalization is called a value-weighted portfolio.Diff: 2Section: The Market PortfolioSkill: Conceptual20) Which of the following statements is FALSEA) Because very little trading is required to maintain it, an equal-weighted portfolio is called a passive portfolio.B) If the number of shares in a value weighted portfolio does not change, but only the prices change, the portfolio will remain value weighted.C) The CAPM says that individual investors should hold the market portfolio, a value-weighted portfolio of all risky securities in the market.D) A price weighted portfolio holds an equal number of shares of each stock, independent of their size.Answer: AExplanation: A) Because very little trading is required to maintain it, a value-weighted portfolio is called a passive portfolio.Diff: 3Section: The Market PortfolioSkill: Conceptual21) Which of the following statements is FALSEA) A market index reports the value of a particular portfolio of securities.B) The S&P 500 is the standard portfolio used to represent "the market" when using the CAPM in practice.C) Even though the S&P 500 includes only 500 of the more than 7,000 individual . Stocks in existence, it represents more than 70% of the . stock market in terms of market capitalization.D) The S&P 500 is an equal-weighted portfolio of 500 of the largest . stocks. Answer: DExplanation: D) The S&P 500 is a value-weighted portfolio of 500 of the largest .stocks.Diff: 2Section: The Market PortfolioSkill: Conceptual22) Which of the following statements is FALSEA) The S&P 500 and the Wilshire 5000 indexes are both well-diversified indexes that roughly correspond to the market of . stocks.B) Practitioners commonly use the S&P 500 as the market portfolio in the CAPM with the belief that this index is the market portfolio.C) Standard & Poor's Depository Receipts (SPDR, nicknamed "spider") trade on the American Stock Exchange and represent ownership in the S&P 500.D) The S&P 500 was the first widely publicized value weighted index and it has become a benchmark for professional investors.Answer: BDiff: 2Section: The Market PortfolioSkill: Conceptual23) In practice which market index is most widely used as a proxy for the market portfolio in the CAPMA) Dow Jones Industrial AverageB) Wilshire 5000C) S&P 500D) . Treasury BillAnswer: CDiff: 1Section: The Market PortfolioSkill: Conceptual24) In practice which market index would best be used as a proxy for the market portfolio in the CAPMA) S&P 500B) Dow Jones Industrial AverageC) . Treasury BillD) Wilshire 5000Answer: DDiff: 1Section: The Market PortfolioSkill: ConceptualUse the table for the question(s) below.Consider the following stock price and shares outstanding data:25) The market capitalization for Wal-Mart is closest to:A) $415 BillionB) $276 BillionC) $479 BillionD) $200 BillionAnswer: DExplanation: D)Diff: 1Section: The Market Portfolio Skill: Analytical26) The total market capitalization for all four stocks is closest to:A) $479 BillionB) $415 BillionC) $2,100 BillionD) $200 BillionAnswer: BExplanation: B)Section: The Market PortfolioSkill: Analytical27) If you are interested in creating a value-weighted portfolio of these four stocks, then the percentage amount that you would invest in Lowes is closest to:A) 25%B) 11%C) %D) 12%Answer: BExplanation: B)Section: The Market Portfolio Skill: Analyticalvalue-weighted portfolio of these four stocks. The number of shares of Wal-Mart that you would hold in your portfolio is closest to: A) 710 B) 1390 C) 1000 D) 870 Answer: C Explanation: C)Stock Name Price per Share SharesOutstanding (Billions)MarketCapitalization (Billions)Percent of Total Number ofSharesLowes $ $ % 368 Wal-Mart $ $ % 1,002 Intel $ $ % 1,387 Boeing $ $ %190Total$Number of shares =Diff: 2Section: The Market Portfolio Skill: Analyticalvalue-weighted portfolio of these four stocks. The percentage of the shares outstanding of Boeing that you would hold in your portfolio is closest to: A) .000018% B) .000020% C) .000024% D) .000031% Answer: C Explanation: C)Stock Name Price per Share SharesOutstanding (Billions)MarketCapitalization (Billions)Percent of Total Number ofSharesLowes $ $ % 368 Wal-Mart $ $ % 1,002 Intel $ $ % 1,387 Boeing $ $ %190Total$Number of shares =percentage shares outstanding = 190/0 = .000024% Diff: 2Section: The Market Portfolio Skill: Analytical30) Assume that you have $250,000 to invest and you are interested in creating a value-weighted portfolio of these four stocks. How many shares of each of the fourstocks will you hold What percentage of the shares outstanding of each stock will you holdAnswer:Stock Name Price perShareSharesOutstanding(Billions)MarketCapitalization(Billions)Percentof TotalNumber ofSharesLowes$ $ %368Wal-Mart$ $ %1,002Intel$ $ %1,387Boeing$ $ %190Total$% of Shares%Number of shares =In a value weighted portfolio, the percentage of shares of every stock will be the same.Diff: 3Section: The Market PortfolioSkill: AnalyticalBeta EstimationUse the following information to answer the question(s) below.Year Risk-freeReturnMarketReturnWyatt OilReturnMarketExcessReturnWyatt OilExcessReturn Beta2007%%%%% 2008%%%.40%% 2009%%%%%1) Wyatt Oil's average historical return is closest to:A) %B) %C) %D) %Answer: AExplanation: A) r average =Year Risk-freeReturnMarketReturnWyatt OilReturnMarketExcessReturnWyatt OilExcessReturn2007%%%%% 2008%%%%% 2009%%%%% Average%%%%%Section: Beta EstimationSkill: Analytical2) The Market's average historical return is closest to:A) %B) %C) %D) %Answer: BExplanation: B) r average =Year Risk-freeReturnMarketReturnWyatt OilReturnMarketExcessReturnWyattOilExcessReturn2007%%%%% 2008%%%%% 2009%%%%% Average%%%%%Section: Beta EstimationSkill: Analytical3) Wyatt Oil's average historical excess return is closest to:A) %B) %C) %D) %Answer: CExplanation: C) excess return average =Year Risk-freeReturnMarketReturnWyatt OilReturnMarketExcessReturnWyattOilExcessReturn2007%%%%% 2008%%%%% 2009%%%%% Average%%%%%Section: Beta EstimationSkill: Analytical4) The Market's average historical excess return is closest to:A) %B) %C) %D) %Answer: DExplanation: D) excess return average =Year Risk-freeReturnMarketReturnWyatt OilReturnMarketExcessReturnWyattOilExcessReturn2007%%%%% 2008%%%%% 2009%%%%% Average%%%%%Section: Beta EstimationSkill: Analytical5) Wyatt Oil's excess return for 2009 is closest to:A) %B) %C) %D) %Answer: AExplanation: A) excess return e = (r WO - r rf)2009Section: Beta Estimation Skill: Analytical6) The Market's excess return for 2008 is closest to:A) %B) %C) %D) %Answer: AExplanation: A) excess return e = (r WO - r rf)2009Section: Beta EstimationSkill: Analytical7) Using the average historical excess returns for both Wyatt Oil and the Market portfolio, your estimate of Wyatt Oil's Beta is closest to:A)B)C)D)Answer: BExplanation: B) excess return average = excess return average =Year Risk-freeReturnMarketReturnWyatt OilReturnMarketExcessReturnWyattOilExcessReturn2007%%%%% 2008%%%%% 2009%%%%% Average%%%%%βWO= = = .8375Diff: 3Section: Beta EstimationSkill: Analytical8) Using the average historical excess returns for both Wyatt Oil and the Market portfolio estimate of Wyatt Oil's Beta. When using this beta, the alpha for Wyatt oil in 2007 is closest to:A) %B) %C) %D) +%Answer: CExplanation: C) excess return average =excess return average =Year Risk-freeReturnMarketReturnWyatt OilReturnMarketExcessReturnWyattOilExcessReturn2007%%%%% 2008%%%%% 2009%%%%% Average%%%%%βWO = = = .8375α = actual return - expected return for CAPM = % - [3% + .8375(6% - 3%)] = %Diff: 3Section: Beta EstimationSkill: Analytical9) Using just the return data for 2009, your estimate of Wyatt Oil's Beta is closest to:A)B)C)D)Answer: BExplanation: B)Year Risk-freeReturnMarketReturnWyatt OilReturnMarketExcessReturnWyattOilExcessReturn2007%%%%%2008%%%%%2009%%%%% Average%%%%%βWO = = = .8651Diff: 2Section: Beta EstimationSkill: Analytical10) Using just the return data for 2008, your estimate of Wyatt Oil's Beta is closest to:A)B)C)D)Answer: A Explanation: A)Year Risk-freeReturnMarketReturnWyatt OilReturnMarketExcessReturnWyattOilExcessReturn2007%%%%% 2008%%%%% 2009%%%%% Average%%%%%βWO = - = .8525Diff: 2Section: Beta EstimationSkill: Analytical11) Which of the following statements is FALSEA) Beta is the expected percent change in the excess return of the security for a 1% change in the excess return of the market portfolio.B) Beta represents the amount by which risks that affect the overall market are amplified for a given stock or investment.C) It is common practice to estimate beta based on the historical correlation and volatilities.D) Beta measures the diversifiable risk of a security, as opposed to its market risk, and is the appropriate measure of the risk of a security for an investor holding the market portfolio.Answer: DExplanation: D) Beta measures the nondiversifiable risk of a security.Diff: 1Section: Beta EstimationSkill: Conceptual12) Which of the following statements is FALSEA) One difficulty when trying to estimate beta for a security is that beta depends on the correlation and volatilities of the security's and market's returns in the future.B) It is common practice to estimate beta based on the expectations of future correlations and volatilities.C) One difficulty when trying to estimate beta for a security is that beta depends on investors expectations of the correlation and volatilities of the security's and market's returns.D) Securities that tend to move less than the market have betas below 1.Answer: BExplanation: B) Beta is measured using past information.Diff: 1Section: Beta EstimationSkill: Conceptual13) Which of the following statements is FALSEA) Securities that tend to move more than the market have betas higher than 0.B) Securities whose returns tend to move in tandem with the market on average have a beta of 1.C) Beta corresponds to the slope of the best fitting line in the plot of the securities excess returns versus the market excess return.D) The statistical technique that identifies the bets-fitting line through a set of points is called linear regression.Answer: ADiff: 2Section: Beta EstimationSkill: ConceptualUse the equation for the question(s) below.Consider the following linear regression model:(R i - r f) = a i + b i(R Mkt - r f) + e i14) The b i in the regressionA) measures the sensitivity of the security to market risk.B) measures the historical performance of the security relative to the expected return predicted by the SML.C) measures the deviation from the best fitting line and is zero on average.D) measures the diversifiable risk in returns.Answer: ADiff: 2Section: Beta EstimationSkill: Conceptual15) The a i in the regressionA) measures the sensitivity of the security to market risk.B) measures the deviation from the best fitting line and is zero on average.C) measures the diversifiable risk in returns.D) measures the historical performance of the security relative to the expected return predicted by the SML.Answer: DDiff: 2Section: Beta EstimationSkill: Conceptual16) The e i in the regressionA) measures the market risk in returns.B) measures the deviation from the best fitting line and is zero on average.C) measures the sensitivity of the security to market risk.D) measures the historical performance of the security relative to the expected return predicted by the SML.Answer: BDiff: 2Section: Beta EstimationSkill: ConceptualThe Debt Cost of CapitalUse the following information to answer the question(s) below.Consider the following information regarding corporate bonds:1) Wyatt Oil has a bond issue outstanding with seven years to maturity, a yield to maturity of %, and a BBB rating. The corresponding risk-free rate is 3% and the market risk premium is 5%. Assuming a normal economy, the expected return on Wyatt Oil's debt is closest to:A) %B) %C) %D) %Answer: BExplanation: B) r d = r rf + β(r m - r rf) = 3% + (5%) = %Diff: 1Section: The Debt Cost of CapitalSkill: Analytical2) Wyatt Oil has a bond issue outstanding with seven years to maturity, a yield to maturity of %, and a BBB rating. The bondholders' expected loss rate in the event of default is 70%. Assuming a normal economy the expected return on Wyatt Oil'sdebt is closest to:A) %B) %C) %D) %Answer: DExplanation: D) r d = ytm - prob(default) × loss rate = 7% - %(70%) = % Diff: 2Section: The Debt Cost of CapitalSkill: Analytical3) Wyatt Oil has a bond issue outstanding with seven years to maturity, a yield to maturity of %, and a BBB rating. The bondholders' expected loss rate in the event of default is 70%. Assuming the economy is in recession, then the expected return on Wyatt Oil's debt is closest to:A) %B) %C) %D) %Answer: BExplanation: B) r d = ytm - prob(default) × loss rate = 7% - %(70%) = %Diff: 2Section: The Debt Cost of CapitalSkill: Analytical4) Rearden Metal has a bond issue outstanding with ten years to maturity, a yield to maturity of %, and a B rating. The corresponding risk-free rate is 3% and the market risk premium is 6%. Assuming a normal economy, the expected return on Rearden Metal's debt is closest to:A) %B) %C) %D) %Answer: CExplanation: C) r d = r rf + β(r m - r rf) = 3% + (6%) = %Diff: 1Section: The Debt Cost of Capital。
(chapter 8-11)(公司理财-对外经济贸易大学)
Chapter 8
Capital Budgeting and Cash Flow Analysis
Introduction
1. Key terms and concepts in capital budgeting 2. Basic framework for capital budgeting 3. Generating capital investment project proposals 4. Calculation of cash flow
– – – – growth opportunities cost reduction opportunities meeting legal requirements meeting health and safety standards
z Project size and decision-making process: decentralized decision-making function
Continued…
Required Return %
x
x Common Stock x Low Quality Corp Debt x High Quality P/S x High Quality Corp Debt x L-T Government Debt S-T Government Debt
z Capital expenditure
– A cash outlay expected to generate a flow of future cash benefits for more than a year
z Classification of projects
– Independent: Acceptance or rejection has no effect on other projects – Mutually Exclusive: Acceptance of one automatically rejects the others – Contingent: Acceptance of one project is dependent upon the selection of another.
公司理财中英文课件 (15)
The Capital-Structure Question and The Pie Theory
The value of a firm is defined to be the sum of the value of the firm’s debt and the firm’s equity. V=B+S
Will the debt-equity ratio influence value of the firm?
S B
弗兰科· 莫迪利安尼 （Franco Modigliani）
米勒 (ler)
Value of the Firm
16
Financial Leverage, EPS, and ROE
27
原始社会、物物交易（无交易成本）、两头母牛
两头牛产奶完全相同
豆豆：张三所有
点点：李四每日取定量， 剩余归王五所有
两头牛价值是否相同？
28
原始社会、物物交易（无交易成本）、两头母牛
两头牛产奶完全相同
豆豆：张三所有
点点：李四每日取定量， 剩余归王五所有
如果认为点点价值大于豆豆 如果认为点点（6只羊）价值大于豆豆（5只羊）
12
1 Cost of Capital：Example
【例】下列关于资本成本的说法正确的有（ ）。 A.公司经营风险和财务风险大，项目的资本成本也就较高 B.公司的资本成本是各种资本要素成本的加权平均数 C.项目资本成本是投资所要求的最低报酬率 D.项目资本成本等于公司资本成本
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1 Cost of Capital：Example
【例】一个公司资本成本的高低，取决于（ ）。 A.项目风险 B.财务风险溢价 C.无风险报酬率 D.经营风险溢价
《公司理财》斯蒂芬A.罗斯..,机械工业出版社 英文课件
Solutions
– Problems 1 and 2 (above) can be moderated by more sophisticated statistical techniques. – Problem 3 can be lessened by adjusting for changes in business and financial risk. – Look at average beta estimates of comparable firms in the industry.
12-5
Example
Suppose the stock of Stansfield Enterprises, a publisher of PowerPoint presentations, has a beta of 2.5. The firm is 100-percent equity financed. Assume a risk-free rate of 5-percent and a market risk premium of 10-percent. What is the appropriate discount rate for an expansion of this firm?
McGraw-Hill/Irwin
Copyright 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
12-12
12.3 Determinants of Beta
Business Risk – Cyclicity of Revenues – Operating Leverage Financial Risk – Financial Leverage
公司理财英文版第十四章
• Start with the dividend growth model formula and rearrange to solve for RE
P0
D1 RE g
RE
D1 P0
g
14-7
Dividend Growth Model Example
• Suppose that your company is expected to pay a dividend of $1.50 per share next year. There has been a steady growth in dividends of 5.1% per year and the market expects that to continue. The current price is $25. What is the cost of equity?
• We need to earn at least the required return to compensate our investors for the financing they have provided
14-5
Cost of Equity
• The cost of equity is the return required by equity investors given the risk of the cash flows from the firm
14-2
Chapter Outline
• The Cost of Capital: Some Preliminaries • The Cost of Equity • The Costs of Debt and Preferred Stock • The Weighted Average Cost of Capital • Divisional and Project Costs of Capital • Flotation Costs and the Weighted Average
公司理财原版英文课件Chap008
PV
$31.875 .05 2
1
1
(1.025)10
$1,000 (1.025)10
$1,060.17
8-7
Bond Example: Calculator
Find the present value (as of January 1, 2009), of a 6 3/8% coupon bond with semi-annual payments, and a maturity date of December 2013 if the YTM is 5%.
C
Low Coupon Bond Discount Rate
8-14
Computing Yield to Maturity
Yield to maturity is the rate implied by the current bond price.
Finding the YTM requires trial and error if you do not have a financial calculator and is similar to the process for finding r with an annuity.
1200
1100
When the YTM = coupon, the
bond trades at par.
1000
800 0
0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09 0.1
6 3/8
Discount Rate
When the YTM > coupon, the bond trades at a discount. 8-10
公司理财罗斯英文原书第九版第十三章
2. The market risk premium, R M
Cov( Ri , RM ) σ i , M 2 3. The company beta, βi Var ( RM ) σM
13-5
RF
Example
Suppose the stock of Stansfield Enterprises, a publisher of PowerPoint presentations, has a beta of 2.5. The firm is 100% equity financed. Assume a risk-free rate of 5% and a market risk premium of 10%. What is the appropriate discount rate for an expansion of this firm?
13.5 Determinants of Beta 13.6 Dividend Discount Model 13.7 Cost of Capital for Divisions and Projects 13.8 Cost of Fixed Income Securities 13.9 The Weighted Average Cost of Capital 13.10 Flotation Costs and the Weighted Average Cost of Capital
13-4
The Cost of Equity Capital
From the firm’s perspective, the expected return is the Cost of Equity Capital:
公司理财英文版第十四章课件
– Year Dividend Percent Change
– 2005 1.23
-
– 2006 1.30 (1.30 – 1.23) / 1.23 = 5.7%
– 2007 1.36 – 2008 1.43 – 2009 1.50
(1.36 – 1.30) / 1.30 = 4.6% (1.43 – 1.36) / 1.36 = 5.1% (1.50 – 1.43) / 1.43 = 4.9%
– Business risk – Financial risk
• There are two major methods for determining the cost of equity
– Dividend growth model – SML, or CAPM
PPT学习交流
14-6
The Dividend Growth Model Approach
Cost of Capital
PPT学习交流
14-3
Why Cost of Capital Is Important
• We know that the return earned on assets depends on the risk of those assets
• The return to an investor is the same as the cost to the company
• Our cost of capital provides us with an indication of how the market views the risk of our assets
• Knowing our cost of capital can also help us determine our required return for capital budgeting projects
英文版罗斯公司理财习题答案Chap012
CHAPTER 12RISK AND THE COST OF CAPITALAnswers to Concepts Review and Critical Thinking Questions1.It is the minimum rate of return the firm must earn overall on its existing assets. If it earns more thanthis, value is created.2.Book values for debt are likely to be much closer to market values than are equity book values.3.No. The cost of capital depends on the risk of the project, not the source of the money.4.Interest expense is tax-deductible. There is no difference between pretax and aftertax equity costs.5.You are assuming that the new project’s risk is the same as the risk of the firm as a whole, and thatthe firm is financed entirely with equity.6.Two primary advantages of the SML approach are that the model explicitly incorporates the relevantrisk of the stock and the method is more widely applicable than is the DCF model, since the SML doesn’t make any assumptions about the firm’s dividends. The primary disadvantages of the SML method are (1) three parameters (the risk-free rate, the expected return on the market, and beta) must be estimated, and (2) the method essentially uses historical information to estimate these parameters.The risk-free rate is usually estimated to be the yield on very short maturity T-bills and is, hence, observable; the market risk premium is usually estimated from historical risk premiums and, hence, is not observable. The stock beta, which is unobservable, is usually estimated either by determining some average historical beta from the firm and the market’s return data, or by using beta estimates provided by analysts and investment firms.7.The appropriate aftertax cost of debt to the company is the interest rate it would have to pay if itwere to issue new debt today. Hence, if the YTM on outstanding bonds of the company is observed, the company has an accurate estimate of its cost of debt. If the debt is privately-placed, the firm could still estimate its cost of debt by (1) looking at the cost of debt for similar firms in similar risk classes, (2) looking at the average debt cost for firms with the same credit rating (assuming the firm’s private debt is rated), or (3) consulting analysts and investment bankers. Even if the debt is publicly traded, an additional complication is when the firm has more than one issue outstanding;these issues rarely have the same yield because no two issues are ever completely homogeneous.8. a.This only considers the dividend yield component of the required return on equity.b.This is the current yield only, not the promised yield to maturity. In addition, it is based on thebook value of the liability, and it ignores taxes.c.Equity is inherently riskier than debt (except, perhaps, in the unusual case where a firm’s assetshave a negative beta). For this reason, the cost of equity exceeds the cost of debt. If taxes are considered in this case, it can be seen that at reasonable tax rates, the cost of equity does exceed the cost of debt.B-2 SOLUTIONS= .12 + .75(.08) = .1800 or 18.00%9.RSupBoth should proceed. The appropriate discount rate does not depend on which company is investing;it depends on the risk of the project. Since Superior is in the business, it is closer to a pure play.Therefore, its cost of capital should be used. With an 18% cost of capital, the project has an NPV of $1 million regardless of who takes it.10.If the different operating divisions were in much different risk classes, then separate cost of capitalfigures should be used for the different divisions; the use of a single, overall cost of capital would be inappropriate. If the single hurdle rate were used, riskier divisions would tend to receive more funds for investment projects, since their return would exceed the hurdle rate despite the fact that they may actually plot below the SML and, hence, be unprofitable projects on a risk-adjusted basis. The typical problem encountered in estimating the cost of capital for a division is that it rarely has its own securities traded on the market, so it is difficult to observe the market’s valuation of the risk of the division. Two typical ways around this are to use a pure play proxy for the division, or to use subjective adjustments of the overall firm hurdle rate based on the perceived risk of the division.11.The discount rate for the projects should be lower that the rate implied by the security market line.The security market line is used to calculate the cost of equity. The appropriate discount rate for projects is the firm’s weighted average cost of capital. Since the firm’s cost of debt is generally less that the firm’s cost of equity, the rate implied by the security market line will be too high.12.Beta measures the responsiveness of a security's returns to movements in the market. Beta isdetermined by the cyclicality of a firm's revenues. This cyclicality is magnified by the firm's operating and financial leverage. The following three factors will impact the firm’s beta. (1) Revenues. The cyclicality of a firm's sales is an important factor in determining beta. In general, stock prices will rise when the economy expands and will fall when the economy contracts. As we said above, beta measures the responsiveness of a security's returns to movements in the market.Therefore, firms whose revenues are more responsive to movements in the economy will generally have higher betas than firms with less-cyclical revenues. (2) Operating leverage. Operating leverage is the percentage change in earnings before interest and taxes (EBIT) for a percentage change in sales. A firm with high operating leverage will have greater fluctuations in EBIT for a change in sales than a firm with low operating leverage. In this way, operating leverage magnifies the cyclicality of a firm's revenues, leading to a high beta. (3) Financial leverage. Financial leverage arises from the use of debt in the firm's capital structure. A levered firm must make fixed interest payments regardless of its revenues. The effect of financial leverage on beta is analogous to the effect of operating leverage on beta. Fixed interest payments cause the percentage change in net income to be greater than the percentage change in EBIT, magnifying the cyclicality of a firm's revenues. Thus, returns on highly-levered stocks should be more responsive to movements in the market than the returns on stocks with little or no debt in their capital structure.CHAPTER 12 B-3 Solutions to Questions and ProblemsNOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem.Basic1. With the information given, we can find the cost of equity using the CAPM. The cost of equity is:R E = .05 + 1.30 (.12 – .05) = .1410 or 14.10%2. The pretax cost of debt is the YTM of the company’s bonds, so:P0 = $1,050 = $40(PVIFA R%,24) + $1,000(PVIF R%,24)R = 3.683%YTM = 2 × 3.683% = 7.37%And the aftertax cost of debt is:R D = .0737(1 – .40) = .0442 or 4.42%3. a.The pretax cost of debt is the YTM of the company’s bonds, so:P0 = $1,080 = $50(PVIFA R%,46) + $1,000(PVIF R%,46)R = 4.58%YTM = 2 × 4.58% = 9.16%b.The aftertax cost of debt is:R D = .0916(1 – .40) = .05496 or 5.50%c.The aftertax rate is more relevant because that is the actual cost to the company.4. The book value of debt is the total par value of all outstanding debt, so:BV D = €20M + 80M = €100MTo find the market value of debt, we find the price of the bonds and multiply by the number of bonds. Alternatively, we can multiply the price quote of the bond times the par value of the bonds.Doing so, we find:MV D = 1.08(€20M) + .58(€80M) = €68MB-4 SOLUTIONSThe YTM of the zero coupon bonds is:P Z = €580 = €1,000(PVIF R%,7)R = 8.09%So, the aftertax cost of the zero coupon bonds is:R Z = .0809(1 – .35) = .0526 or 5.26%The aftertax cost of debt for the company is the weighted average of the aftertax cost of debt for all outstanding bond issues. We need to use the market value weights of the bonds. The total aftertax cost of debt for the company is:R D = .0595(€21.6/€68) + .0526(€46.4/€68) = .0548 or 5.48%5. Using the equation to calculate the WACC, we find:WACC = .60 (.16) + .40(.09)(1 – .35) = .1194 or 11.94%6. Here we need to use the debt-equity ratio to calculate the WACC. Doing so, we find:WACC = .18(1/1.60) + .10(.60/1.60)(1 – .35) = .1369 or 13.69%7.Here we have the WACC and need to find the debt-equity ratio of the company. Setting up theWACC equation, we find:WACC = .1150 = .16(E/V) + .075(D/V)(1 – .35)Rearranging the equation, we find:.115(V/E) = .16 + .075(.65)(D/E)Now we must realize that the V/E is just the equity multiplier, which is equal to:V/E = 1 + D/E.115(D/E + 1) = .16 + .04875(D/E)Now we can solve for D/E as:.06625(D/E) = .0450D/E = .6792CHAPTER 12 B-5 8. a.The book value of equity is the book value per share times the number of shares, and the bookvalue of debt is the face value of the company’s debt, so:BV E = 9.5M(£5) = £47.5MBV D = £75M + 60M = £135MSo, the total value of the company is:V = £47.5M + 135M = £182.5MAnd the book value weights of equity and debt are:E/V = £47.5/£182.5 = .2603D/V = 1 – E/V = .7397b.The market value of equity is the share price times the number of shares, so:MV E = 9.5M(£53) = £503.5MUsing the relationship that the total market value of debt is the price quote times the par value of the bond, we find the market value of debt is:MV D = .93(£75M) + .965(£60M) = £127.65MThis makes the total market value of the company:V = £503.5 + 127.65M = £631.15And the market value weights of equity and debt are:E/V = £503.5/£631.15 = .7978D/V = 1 – E/V = .2022c.The market value weights are more relevant.B-6 SOLUTIONS9.First, we will find the cost of equity for the company. The information provided allows us to solvefor the cost of equity using the CAPM, so:R E = .052 + 1.2(.09) = .1600 or 16.00%Next, we need to find the YTM on both bond issues. Doing so, we find:P1 = $930 = $40(PVIFA R%,20) + $1,000(PVIF R%,20)R = 4.54%YTM = 4.54% × 2 = 9.08%P2 = $965 = $37.5(PVIFA R%,12) + $1,000(PVIF R%,12)R = 4.13%YTM = 4.13% × 2 = 8.25%To find the weighted average aftertax cost of debt, we need the weight of each bond as a percentage of the total debt. We find:w D1 = .93($75M)/$127.65M = .546w D2 = .965($60M)/$127.65M = .454Now we can multiply the weighted average cost of debt times one minus the tax rate to find the weighted average aftertax cost of debt. This gives us:R D = (1 – .40)[(.546)(.0908) + (.454)(.0825)] = .0522 or 5.22%Using these costs and the weight of debt we calculated earlier, the WACC is:WACC = .7978(.1600) + .2022(.0522) = .1382 or 13.82%10. ing the equation to calculate WACC, we find:WACC = .105 = (1/1.8)(.15) + (.8/1.8)(1 – .35)R DR D = .0750 or 7.50%ing the equation to calculate WACC, we find:WACC = .105 = (1/1.8)R E + (.8/1.8)(.062)R E = .1394 or 13.94%CHAPTER 12 B-7 11.We will begin by finding the market value of each type of financing. We find:MV D = 4,000($1,000)(1.03) = $4,120,000MV E = 90,000($57) = $5,130,000And the total market value of the firm is:V = $4,120,000 + 5,130,000 = $9,250,000Now, we can find the cost of equity using the CAPM. The cost of equity is:R E = .06 + 1.10(.08) = .1480 or 14.80%The cost of debt is the YTM of the bonds, so:P0 = $1,030 = $35(PVIFA R%,40) + $1,000(PVIF R%,40)R = 3.36%YTM = 3.36% × 2 = 6.72%And the aftertax cost of debt is:R D = (1 – .35)(.0672) = .0437 or 4.37%Now we have all of the components to calculate the WACC. The WACC is:WACC = .0437(4.12/9.25) + .1480(5.13/9.25) = .1015 or 10.15%Notice that we didn’t include the (1 – t C) term in the WACC equation. We simply used the aftertax cost of debt in the equation, so the term is not needed here.12. a.We will begin by finding the market value of each type of financing. We find:MV D = 120,000(元1,000)(0.93) = 元111,600,000MV E = 9,000,000(元34) = 元306,000,000And the total market value of the firm is:V = 元111,600,000 + 306,000,000 = 元417,600,000So, the market value weights of the comp any’s financing is:D/V = 元111,600,000/元417,600,000 = .2672E/V = 元111,600,000/元417,600,000 = .7328B-8 SOLUTIONSb.For projects equally as risky as the firm itself, the WACC should be used as the discount rate.First we can find the cost of equity using the CAPM. The cost of equity is:R E = .05 + 1.20(.10) = .1700 or 17.00%The cost of debt is the YTM of the bonds, so:P0 = 元930 = 元42.5(PVIFA R%,30) + 元1,000(PVIF R%,30)R = 4.69%YTM = 4.69% × 2 = 9.38%And the aftertax cost of debt is:R D = (1 – .35)(.0938) = .0610 or 6.10%Now we can calculate the WACC as:WACC = .1700(.7328) + .0610 (.2672) = .1409 or 14.09%13. a.Projects X, Y and Z.ing the CAPM to consider the projects, we need to calculate the expected return of eachproject given its level of risk. This expected return should then be compared to the expected return of the project. If the return calculated using the CAPM is higher than the project expected return, we should accept the project; if not, we reject the project. After considering risk via the CAPM:E[W] = .05 + .60(.12 – .05) = .0920 < .11, so accept WE[X] = .05 + .90(.12 – .05) = .1130 < .13, so accept XE[Y] = .05 + 1.20(.12 – .05) = .1340 < .14, so accept YE[Z] = .05 + 1.70(.12 – .05) = .1690 > .16, so reject Zc. Project W would be incorrectly rejected; Project Z would be incorrectly accepted.Intermediateing the debt-equity ratio to calculate the WACC, we find:WACC = (.65/1.65)(.055) + (1/1.65)(.15) = .1126 or 11.26%Since the project is riskier than the company, we need to adjust the project discount rate for the additional risk. Using the subjective risk factor given, we find:Project discount rate = 11.26% + 2.00% = 13.26%CHAPTER 12 B-9We would accept the project if the NPV is positive. The NPV is the PV of the cash outflows plus the PV of the cash inflows. Since we have the costs, we just need to find the PV of inflows. The cash inflows are a growing perpetuity. If you remember, the equation for the PV of a growing perpetuity is the same as the dividend growth equation, so:PV of future CF = $3,500,000/(.1326 – .05) = $42,385,321The project should only be undertaken if its cost is less than $42,385,321 since costs less than this amount will result in a positive NPV.15.We will begin by finding the market value of each type of financing. We will use D1 to representthe coupon bond, and D2 to represent the zero coupon bond. So, the market value of the firm’s financing is:MV D1 = 50,000(¥1,000)(1.1980) = ¥59,900,000MV D2 = 150,000(¥1,000)(.1385) = ¥20,775,000MV P = 120,000(¥112) = ¥13,440,000MV E = 2,000,000(¥65) = ¥130,000,000And the total market value of the firm is:V = ¥59,900,000 + 20,775,000 + 13,440,000 + 130,000,000 = ¥224,115,000Now, we can find the cost of equity using the CAPM. The cost of equity is:R E = .04 + 1.10(.09) = .1390 or 13.90%The cost of debt is the YTM of the bonds, so:P0 = ¥1,198 = ¥40(PVIFA R%,50) + ¥1,000(PVIF R%,50)R = 3.20%YTM = 3.20% × 2 = 6.40%And the aftertax cost of debt is:R D2 = (1 – .40)(.0640) = .0384 or 3.84%And the aftertax cost of the zero coupon bonds is:P0 = ¥138.50 = ¥1,000(PVIF R%,60)R = 3.35%YTM = 3.35% × 2 = 6.70%R D1 = (1 – .40)(.0670) = .0402 or 4.02%Even though the zero coupon bonds make no payments, the calculation for the YTM (or price) still assumes semiannual compounding, consistent with a coupon bond. Also remember that, even though the company does not make interest payments, the accrued interest is still tax deductible for the company.B-10 SOLUTIONSTo find the required return on preferred stock, we can use the preferred stock pricing equation, which is the level perpetuity equation, so the required return on the company’s preferred stock is: R P = D1 / P0R P = ¥6.50 / ¥112R P = .0580 or 5.80%Notice that the required return in the preferred stock is lower than the required on the bonds. This result is not consistent with the risk levels of the two instruments, but is a common occurrence.There is a practical reason for this: Assume Company A owns stock in Company B. The tax code allows Company A to exclude at least 70 percent of the dividends received from Company B, meaning Company A does not pay taxes on this amount. In practice, much of the outstanding preferred stock is owned by other companies, who are willing to take the lower return since it is effectively tax exempt.Now we have all of the components to calculate the WACC. The WACC is:WACC = .0684(59.9/224.115) + .0402(20.775/224.115) + .1390(130/224.115)+ .0580(13.44/224.115)WACC = .0981 or 9.81%Challenge16.We can use the debt-equity ratio to calculate the weights of equity and debt. The debt of thecompany has a weight for long-term debt and a weight for accounts payable. We can use the weight given for accounts payable to calculate the weight of accounts payable and the weight of long-term debt. The weight of each will be:Accounts payable weight = .20/1.20 = .17Long-term debt weight = 1/1.20 = .83Since the accounts payable has the same cost as the overall WACC, we can write the equation for the WACC as:WACC = (1/2.3)(.17) + (1.3/2.3)[(.20/1.2)WACC + (1/1.2)(.09)(1 – .35)]Solving for WACC, we find:WACC = .0739 + .5652[(.20/1.2)WACC + .0488]WACC = .0739 + (.0942)WACC + .0276(.9058)WACC = .1015WACC = .1132 or 11.32%Since the cash flows go to perpetuity, we can calculate the future cash inflows using the equation for the PV of a perpetuity. The NPV is:NPV = –$45,000,000 + ($5,700,000/.1132)NPV = –$45,000,000 + 50,372,552 = $5,372,552CHAPTER 12 B-11 17.The €4 million cost of the land 3 years ago is a sunk cost and irrelevant; the €6.5 million appraisedvalue of the land is an opportunity cost and is relevant. The relevant market value capitalization weights are:MV D = 15,000(€1,000)(0.92) = €13,800,000MV E = 300,000(€75) = €22,500,000MV P = 20,000(€72) = €1,440,000The total market value of the company is:V = €13,800,000 + 22,500,000 + 1,440,000 = €37,740,000Next we need to find the cost of funds. We have the information available to calculate the cost of equity using the CAPM, so:R E = .05 + 1.3(.08) = .1540 or 15.40%The cost of debt is the YTM of the company’s outstanding bonds, so:P0 = €920 = €35(PVIFA R%,30) + €1,000(PVIF R%,30)R = 3.96%YTM = 3.96% × 2 = 7.92%And the aftertax cost of debt is:R D = (1 – .35)(.0792) = .0515 or 5.15%The cost of preferred stock is:R P = €5/€72 = .0694 or 6.94%a.The initial cost to the company will be the opportunity cost of the land, the cost of the plant,and the net working capital cash flow, so:CF0 = –€6,500,000 – 15,000,000 – 900,000 = –€22,400,000b.To find the required return on this project, we first need to calculate the WACC for thecompany. The company’s WACC is:WACC = [(€22.5/€37.74)(.1540) + (€1.44/€37.74)(.0694) + (€13.8/€37.74)(.0515)] = .1133The company wants to use the subjective approach to this project because it is located overseas.The adjustment factor is 2 percent, so the required return on this project is:Project required return = .1133 + .02 = .1333B-12 SOLUTIONSc.The annual depreciation for the equipment will be:€15,000,000/8 = €1,875,000So, the book value of the equipment at the end of five years will be:BV5 = €15,000,000 – 5(€1,875,000) = €5,625,000So, the aftertax salvage value will be:Aftertax salvage value = €5,000,000 + .35(€5,625,000 – 5,000,000) = €5,218,750ing the tax shield approach, the OCF for this project is:OCF = [(P – v)Q – FC](1 – t) + t C DOCF = [(€10,000 – 9,000)(12,000) – 400,000](1 – .35) + .35(€15M/8) = €8,196,250e.The accounting breakeven sales figure for this project is:Q A = (FC + D)/(P – v) = (€400,000 + 1,875,000)/(€10,000 – 9,000) = 2,275 unitsf.We have calculated all cash flows of the project. We just need to make sure that in Year 5 weadd back the aftertax salvage value, the recovery of the initial NWC, and the aftertax value of the land. The cash flows for the project are:Year Flow Cash0 –€22,400,0001 8,196,2502 8,196,2503 8,196,2504 8,196,2505 18,815,000Using the required return of 13.33 percent, the NPV of the project is:NPV = –€22,400,000 + €8,196,250(PVIFA13.33%,4) + €18,815,000/1.13335NPV = €11,878,610.78And the IRR is:NPV = 0 = –€22,400,000 + €8,196,250(PVIFA IRR%,4) + €18,815,000/(1 + IRR)5IRR = 30.87%。
公司理财
一、名词解释（九选五）1.Cost of capital: the cost of capital is the minimum acceptable rate of return for capital investment.Investment projects offering rates of return higher than the cost of capital add value to the firm.资本成本：指公司可以从现有资产获得的符合投资人期望的最小收益率也可称为可接受的最低收益率。
投资项目的收益率高于资本成本时可以增加企业价值。
2.Capital structure: its mix of debt and equity financing—and consider the expected rates of return required by debt as well as equity investors. 资本结构：指长期债务资本和权益资本各占多大比例。
P2513.Economic value added(EVA): Income that is measured after deduction of the cost is often known as economic.经济增加值:从营运利润中减去资本成本后的剩余价值。
经济增加值大于零的项目能增加企业价值。
P195 present value(NPV): NPV is found by subtracting the required initial investment from the present value of the projects cash flows:NPV=PV-required investment净现值：特定方案未来现金流量的贴现值与初始投资额之间的差额。
P1375.Free cash flow:The operating cash flow less investment expenditures is amount of cash that the business can pay out to investment after paying for all investments necessary for growth.自由现金流：经营现金流量减去投资和营运资金指出后的余额，是投资者的可用现金流量。
公司理财
n
4.2 Weighted average cost of capital
A weighted cost of the individual costs of financing, which is equal to the cost of each source of financing multiplied by the percentage of the financing provided by that source.
17
4.2 Weighted average cost of capital
Computing the WACC:
How
many kinds of capital sources? the cost of each capital source; The percentage of each capital source.
4
4.1 Cost of capital
The cost of capital is the opportunity cost of funds of the firm’s investors; It is the rate of return that could be earned in the capital markets with a similar amount of risk; It is also the return the firm must earn on its investment in order to satisfy the required rate of return of the firm’s investors.
Factors determining the firm’s WACC:
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Example: Estimating the Dividend Growth Rate
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(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%
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– Not applicable if dividends aren’t growing at a reasonably constant rate – Extremely sensitive to the estimated growth rate – an increase in g of 1% increases the cost of equity by 1% – Does not consider risk
Invest in project
Because stockholders can reinvest the dividend in risky financial assets, the expected return on a capital-budgeting project should be at least as great as the expected return on a financial asset of comparable risk.
– RE = 6.1 + .58(8.6) = 11.1%
Since we came up with similar numbers using both the dividend growth model and the SML approach, we should feel pretty good about our estimate
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Cost of Equity
The cost of equity is the return required by equity investors given the risk of the cash flows from the firm
– Business risk – Financial risk
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– Using SML: RE = 6% + 1.5(9%) = 19.5% – Using DGM: RE = [2(1.06) / 15.65] + .06 = 19.55%
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Cost of Debt
The cost of debt is the required return on our company’s debt We usually focus on the cost of long-term debt or bonds The required return is best estimated by computing the yield-to-maturity on the existing debt We may also use estimates of current rates based on the bond rating we expect when we issue new debt The cost of debt is NOT the coupon rate
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Chapter Outline
The Cost of Capital The Cost of Equity The Costs of Debt and Preferred Stock The Weighted Average Cost of Capital
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Disadvantages
– Have to estimate the expected market risk premium, which does vary over time – Have to estimate beta, which also varies over time – We are using the past to predict the future, which is not always reliable
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Required Return
The required return is the same as the appropriate discount rate and is based on the risk of the cash flows We need to know the required return for an investment before we can compute the NPV and make a decision about whether or not to take the investment We need to earn at least the required return to compensate our investors for the financing they have provided
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Example: Cost of Debt
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Yield to Maturity
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Yield to Maturity of a Coupon Bond
There are two major methods for determining the cost of equity
– Dividend growth model – SML or CAPM
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The Cost of Equity Capital
Firm with excess cash
Why Cost of Capital Is Important
We know that the return earned on assets depends on the risk of those assets The return to an investor is the same as the cost to the company Our cost of capital provides us with an indication of how the market views the risk of our assets Knowing our cost of capital can also help us determine our required return for capital budgeting projects
Average = (5.7 + 4.6 + 5.1 + 4.9) / 4 = 5.1%
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Advantage – easy to understand and use Disadvantages
Advantages and Disadvantages of Dividend Growth Model
1.50 RE .051 .111 11 .1% 25
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One method for estimating the growth rate is to use the historical average
– – – – – – Year 2000 2001 2002 2003 1999 Dividend 1.23 1.30 1.36 1.43 1.50 Percent Change -
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Advantages and Disadvantages of SML
Advantages
– adjusts for systematic risk – Applicable to all companies, as long as we can estimate beta
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The Dividend Growth Model Approach
Start with the dividend growth model formula and rearrange to solve for RE
D1 P 0 RE g D1 RE g P 0
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Example – Cost of Equity
Suppose our company has a beta of 1.5. The market risk premium is expected to be 9% and the current risk-free rate is 6%. We have used analysts’ estimates to determine that the market believes our dividends will grow at 6% per year and our last dividend was $2. Our stock is currently selling for $15.65. What is our cost of equity?
RE Rf E (E(RM ) R f )
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Example - SML
Suppose your company has an equity beta of .58 and the current risk-free rate is 6.1%. If the expected market risk premium is 8.6%, what is your cost of equity capital?
Dividend Growth Model Example