《金融学(第二版)》讲义大纲及课后习题答案详解-十六章

CHAPTER 16

CAPITAL STRUCTURE

Objectives

To understand how a firm can create value through its financing decisions.

To show how to take account of a firm’s financing mix in evaluating investment decisions.

Outline

Internal versus External Financing

Equity Financing

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Debt Financing

The Irrelevance of Capital Structure in a Frictionless Environment

Creating Value through Financing Decisions

Reducing Costs

Dealing with Conflicts of Interest

Creating New Opportunities for Stakeholders

Financing Decisions in Practice

How to Evaluate Levered Investments

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Summary

External financing subjects a corporation’s investment plans more directly to the discipline of the capital market than internal financing does.

Debt financing in its broadest sense includes loans and debt securities, such as bonds and mortgages, as well as other promises of future payment by the corporation, such as accounts payable, leases, and pensions.

In a frictionless financial environment, where there are no taxes or transaction costs, and contracts are costless to make and enforce, the wealth of shareholders is the same no matter what capital structure the firm adopts.

In the real world there are a number of frictions that can cause capital structure policy to have an effect on the wealth of shareholders. These include taxes, regulations, and conflicts of interest between the stakeholders of the firm. A firm’s management might therefore be able to create shareholder value through its capital structure decisions in one of three ways:

By reducing tax costs or the costs of burdensome regulations.

By reducing potential conflicts of interest among various stakeholders in the firm.

By providing stakeholders with financial assets not otherwise available to them.

There are three alternative methods used in estimating the net present value of an investment project to take account of financial leverage: the adjusted present value method, the flows to equity method, and the weighted average cost of capital method

Solutions to Problems at End of Chapter

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Debt-Equity Mix

1. Divido Corporation is an all-equity financed firm with a total market value of $100 million.The company holds $10 million in cash-equivalents and has $90 million in other assets.There are 1,000,000 shares of Divido common stock outstanding, each with a market price of $100.Divido Corporation has decided to issue $20 million of bonds and to repurchase $20 million worth of its stock.

a.What will be the impact on the price of its shares and on the wealth of its

shareholders Why

b.Assume that Divido’s EBIT has an equal probability of being $20 million, or

$12 million, or $4million.Show the impact of the financial restructuring on the probability distribution of earnings per share in the absence of taxes.

Why does the fact that the equity becomes riskier not necessarily affect shareholder wealth

SOLUTION:

a.In an M&M frictionless environment, where there are no taxes and contracts

are costless to make and enforce, the wealth of shareholders is the same no matter what capital structure the firm adopts. In such an environment, neither the stock price nor shareholders’ wealth would be affected. In the real world Divido’s management might be able to create shareholder value by issui ng debt and repurchasing shares in two ways:

By reducing tax costs

By reducing the free cash flow available to management and exposing itself to greater market discipline.

b.)

c.The formula for EPS without debt is:

EPS all equity =EBIT

1,000,000 shares

The interest payments will be $ million per year (.06 x $20 million) regardless of the realized value of EBIT. The number of shares outstanding after

exchanging debt for equity will be 800,000. EPS with debt is therefore: EPS with debt = Net Earnings= EBIT – $ million

800,000 shares 800,000 shares