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1、g10byzw,主编,8.1 Leverage Analyses 8.2 MM Proposition 8.3 Limits to the Use of Debt,8.1 Leverage Analyses,8.1.1 The Capital-Structure Question and The Pie Theory 8.1.2 Leverage and Returns to Shareholders,Throughout the discussion, we assume that corporate investment and asset management decisions rem
2、ain unchanged. The aim was to try to separate the effects on stock prices from the change of financing mix. We define the value of the firm to be this sum. Hence, the value of the firm, V is,8.1.1 The Capital-Structure Question and The Pie Theory,（8-1）,8.1.1 The Capital-Structure Question and The Pi
3、e Theory,Figure 8-1 Two Way of Slicing Pie Between Stock and Debt,8.1.2 Leverage and Returns to Shareholders,8.1.2 Leverage and Returns to Shareholders,8.1.2 Leverage and Returns to Shareholders,8.1.2 Leverage and Returns to Shareholders,Figure 8-2 Relationship Between Financial Leverage and EPS or
4、EBI,8.2 MM Proposition,MM Proposition I: Their argument compares a simple strategy, which we call strategy A, with a two-part strategy, which we call strategy B. Both of these strategies for shareholders of A company are illuminated in Table 8-4. Let us now examine the first strategy. Strategy A Str
5、ategy B:,8.2.1 Risk to Equity holders Rises with Leverage 8.2.2 Present Value of the Tax Shield 8.2.3 Value of the Levered Firm,8.2 MM Proposition,Strategy A,Buy 100 shares of the levered equity. The second line in the top panel of Table 8-4 shows EPS for the proposed levered equity in the three eco
6、nomic states. The third line shows the earnings in the three states for an individual buying 100 shares. The next line shows that the cost of these 100 shares is 2，000. Let us now consider the second strategy, which has two parts to it.,Strategy B:,1. Borrow 2，000 from either a bank or, more likely,
7、 a brokerage house. (If the brokerage house is the lender, we say that this is going on margin.) 2. Use the borrowed proceeds plus your own investment of 2，000 (a total of 4，000) to buy 200 shares of the current unlevered equity at 20 per share.,Strategy B:,MM Proposition I (no taxes): The value of
8、the levered firm is the same as the value of the unlevered firm. Of course, the study of MM is based on some unrealistic assumptions, which including the following: (1)No brokerage costs. (2)No income tax. (3)No bankruptcy costs. (4)Investors could get the loan in the same interest as the company co
9、uld get. (5)All of the investors have the same information to understand the companys future investment opportunities like the companys management. (6)The using of debt has no financing impact to EBIT.,Strategy B:,8.2.1 Risk to Equity holders Rises with Leverage,In the investment banking field there
10、 is a basic principle: risk and return must be trade-off and matching. We introduce the companys weighted average cost of capital in order to clarify this point, r WACC, can be written as：,（8-2）,8.2.1 Risk to Equity holders Rises with Leverage,Let us now define r0 to be the cost of capital for an al
11、l-equity firm. For the A company, r0 is calculated as: MM Proposition II (no taxes):,（8-3）,8.2.2 Present Value of the Tax Shield,The discussion above shows a tax advantage to debt or, equivalently, a tax disadvantage to equity. We now want to value this advantage. The dollar interest is: Algebraical
12、ly, the reduction in corporate taxes is:,（8-4）,8.2.2 Present Value of the Tax Shield,As long as the firm expects to be in a positive tax bracket, we can assume that the cash flow in expression (8-4) has the same risk as the interest on the debt. Thus, its value can be determined by discounting at th
13、e interest rate, rB. Assuming that the cash flows are perpetual, the present value of the tax shield is：,8.2.3 Value of the Levered Firm,Now we will continue to calculate the value of the levered firm, before we have just calculated the present value of the tax shield from debt. At first, the annual
14、 after-tax cash flow of an unlevered firm is：,8.2.3 Value of the Levered Firm,We can write this algebraically as:,（8-5）,8.3 Limits to the Use of Debt,8.3.1 Cost of Financial Distress 8.3.2 Agency Costs,8.3.1 Cost of Financial Distress,1. Direct Costs of Financial Distress 2. Indirect Costs of Financ
15、ial Distress,1. Direct Costs of Financial Distress,If there exists the possibility of bankruptcy costs, and insolvency-related processing and other costs are high, then the company who use the financial leverage will have less attractiveness to investors than those who make no use of financial lever
16、age.,2. Indirect Costs of Financial Distress,In addition to the direct cost described above the cost of financial distress has more indirect costs, its business impact may be greater. Bankruptcy hampers conduct with customers and suppliers. Sales are frequently lost because of both fear of impaired service and loss of trust.,8.3.2 Agency Costs,1. Selfish Investment Strategy 1 2. Selfish Investment Strategy 2 3. Selfish Investment Strategy 3 4. Summary of Selfish Strategies.,1. Selfish In
