Sie sind auf Seite 1von 25

15-1

Chapter Fifteen

Capital Structure:
Basic
Corporate
Finance
Ross Westerfield Jaffe
Concepts

15

Sixth Edition

Prepared by
Gady Jacoby
University of Manitoba
and
Sebouh Aintablian
American University of
Beirut
McGraw-Hill Ryerson

2003 McGrawHill Ryerson Limited

15-2

Chapter Outline
15.1 The Capital-Structure Question and The Pie Theory
15.2 Maximizing Firm Value versus Maximizing
Stockholder Interests
15.3 Financial Leverage and Firm Value: An Example
15.4 Modigliani and Miller: Proposition II (No Taxes)
15.5 Taxes
15.6 Summary and Conclusions

McGraw-Hill Ryerson

2003 McGrawHill Ryerson Limited

15-3

15.1 The Capital-Structure Question and The Pie Theory


The value of a firm is defined to be the sum of the
value of the firms debt and the firms equity.
V=B+S
If the goal of the
management of the firm is to
make the firm as valuable as
possible, then the firm should
pick the debt-equity ratio that
makes the pie as big as
possible.
McGraw-Hill Ryerson

Value of the Firm


2003 McGrawHill Ryerson Limited

15-4

The Capital-Structure Question


There are really two important questions:
1. Why should the stockholders care about
maximizing firm value? Perhaps they should be
interested in strategies that maximize shareholder
value.
2. What is the ratio of debt-to-equity that maximizes
the shareholders value?
As it turns out, changes in capital structure benefit the
stockholders if and only if the value of the firm
increases.
McGraw-Hill Ryerson

2003 McGrawHill Ryerson Limited

15-5

15.3 Financial Leverage, EPS, and ROE


Consider an all-equity firm that is considering going into
debt. (Maybe some of the original shareholders want to
cash out.)
Assets
Debt
Equity
Debt/Equity ratio
Interest rate
Shares outstanding
Share price
McGraw-Hill Ryerson

Current
$20,000
$0
$20,000
0.00
n/a
400
$50

Proposed
$20,000
$8,000
$12,000
2/3
8%
240
$50
2003 McGrawHill Ryerson Limited

15-6

EPS and ROE Under Current Capital Structure

EBIT
Interest
Net income
EPS
ROA
ROE

Recession
$1,000
0
$1,000
$2.50
5%
5%

Expected Expansion
$2,000
$3,000
0
0
$2,000
$3,000
$5.00
$7.50
10%
15%
10%
15%

Current Shares Outstanding = 400 shares


McGraw-Hill Ryerson

2003 McGrawHill Ryerson Limited

15-7

EPS and ROE Under Proposed Capital Structure

EBIT
Interest
Net income
EPS
ROA
ROE

Recession
$1,000
640
$360
$1.50
5%
3%

Expected Expansion
$2,000
$3,000
640
640
$1,360
$2,360
$5.67
$9.83
10%
15%
11%
20%

Proposed Shares Outstanding = 240 shares


McGraw-Hill Ryerson

2003 McGrawHill Ryerson Limited

15-8

EPS and ROE Under Both Capital Structures


All-Equity
Recession
EBIT
$1,000
Interest
0
Net income
$1,000
EPS
$2.50
ROA
5%
ROE
5%
Current Shares Outstanding = 400 shares

EBIT
Interest
Net income
EPS
ROA
ROE

Levered
Recession
$1,000
640
$360
$1.50
5%
3%

Expected
$2,000
0
$2,000
$5.00
10%
10%

Expansion
$3,000
0
$3,000
$7.50
15%
15%

Expected
$2,000
640
$1,360
$5.67
10%
11%

Expansion
$3,000
640
$2,360
$9.83
15%
20%

Proposed Shares Outstanding = 240 shares


McGraw-Hill Ryerson

2003 McGrawHill Ryerson Limited

15-9

Financial Leverage and EPS


12.00
Debt

10.00

EPS

8.00
6.00
4.00

No Debt

Advantage
to debt

Break-even
point

2.00
0.00
1,000

(2.00)
McGraw-Hill Ryerson

Disadvantage
to debt

2,000

3,000

EBIT
EBI in dollars, no taxes
2003 McGrawHill Ryerson Limited

15-10

Assumptions of the Modigliani-Miller Model

Homogeneous Expectations
Homogeneous Business Risk Classes
Perpetual Cash Flows
Perfect Capital Markets:

Perfect competition
Firms and investors can borrow/lend at the same rate
Equal access to all relevant information
No transaction costs
No taxes

McGraw-Hill Ryerson

2003 McGrawHill Ryerson Limited

15-11

Homemade Leverage: An Example


EPS of Unlevered Firm

Recession Expected Expansion


$2.50
$5.00
$7.50

Earnings for 40 shares


Less interest on $800 (8%)
Net Profits
ROE (Net Profits / $1,200)

$100
$64
$36
3%

$200
$64
$136
11%

$300
$64
$236
20%

We are buying 40 shares of a $50 stock on margin. We get the


same ROE as if we bought into a levered firm.
Our personal debt equity ratio is:
B
$800 2

3
S $1,200
McGraw-Hill Ryerson

2003 McGrawHill Ryerson Limited

15-12

Homemade (Un)Leverage: An Example


EPS of Levered Firm
Earnings for 24 shares
Plus interest on $800 (8%)
Net profits
ROE (Net profits / $2,000)

Recession Expected Expansion


$1.50
$5.67
$9.83
$36
$64
$100
5%

$136
$64
$200
10%

$236
$64
$300
15%

Buying 24 shares of an otherwise identical levered firm along


with some of the firms debt gets us to the ROE of the
unlevered firm.
This is the fundamental insight of M&M
McGraw-Hill Ryerson

2003 McGrawHill Ryerson Limited

15-13

The MM Propositions I & II (No Taxes)


Proposition I
Firm value is not affected by leverage
VL = VU

Proposition II
Leverage increases the risk and return to stockholders
rs = r0 + (B / SL) (r0 - rB)
rB is the interest rate (cost of debt)
rs is the return on (levered) equity (cost of equity)
r0 is the return on unlevered equity (cost of capital)
B is the value of debt
SL is the value of levered equity
McGraw-Hill Ryerson

2003 McGrawHill Ryerson Limited

15-14

The MM Proposition I (No Taxes)


The derivation is straightforward:
Shareholders in a levered firm receive

EBIT rB B

Bondholders receive
rB B

Thus, the total cash flow to all stakeholders is


( EBIT rB B ) rB B
The present value of this stream of cash flows is VL
Clearly

( EBIT rB B ) rB B EBIT
The present value of this stream of cash flows is VU

VL VU
McGraw-Hill Ryerson

2003 McGrawHill Ryerson Limited

15-15

15.4 The MM Proposition II (No Taxes)


The derivation is straightforward:
rWACC

B
S

rB
rS
BS
BS

B
S
rB
rS r0
BS
BS

Then set rWACC r0


multiply both sides by

BS
S

BS
B
BS
S
BS

rB

rS
r0
S
BS
S
BS
S
B
BS
rB rS
r0
S
S

B
B
rB rS r0 r0
S
S
McGraw-Hill Ryerson

B
rS r0 (r0 rB )
S
2003 McGrawHill Ryerson Limited

The Cost of Equity, the Cost of Debt, and the


Weighted Average Cost of Capital: MM
Proposition II with No Corporate Taxes
Cost of capital: r (%)

15-16

r0

rS r0

rWACC

B
(r0 rB )
SL

B
S
rB
rS
BS
BS
rB

rB

Debt-to-equity Ratio
McGraw-Hill Ryerson

B
S

2003 McGrawHill Ryerson Limited

15-17

15.5 Taxes
The MM Propositions I & II (with Corporate Taxes)
Proposition I (with Corporate Taxes)
Firm value increases with leverage
VL = VU + TC B

Proposition II (with Corporate Taxes)


Some of the increase in equity risk and return is offset by
interest tax shield
rS = r0 + (B/S)(1-TC)(r0 - rB)
rB is the interest rate (cost of debt)
rS is the return on equity (cost of equity)
r0 is the return on unlevered equity (cost of capital)
B is the value of debt
S is the value of levered equity
McGraw-Hill Ryerson

2003 McGrawHill Ryerson Limited

15-18

The MM Proposition I (Corp. Taxes)


Shareholders in a levered firm receive Bondholders receive
( EBIT rB B ) (1 TC )
rB B
Thus, the total cash flow to all stakeholders is
( EBIT rB B ) (1 TC ) rB B
The present value of this stream of cash flows is VL
Clearly ( EBIT rB B ) (1 TC ) rB B

EBIT (1 TC ) rB B (1 TC ) rB B
EBIT (1 TC ) rB B rB BTC rB B
The present value of the first term is VU
The present value of the second term is TCB
McGraw-Hill Ryerson

VL VU TC B
2003 McGrawHill Ryerson Limited

15-19

The MM Proposition II (Corp. Taxes)


Start with M&M Proposition I with taxes: VL VU TC B
Since

VL S B S B VU TC B
VU S B (1 TC )

The cash flows from each side of the balance sheet must equal:

SrS BrB VU r0 TC BrB


SrS BrB [ S B (1 TC )]r0 TC rB B
Divide both sides by S
B
B
B
rS rB [1 (1 TC )]r0 TC rB
S
S
S
Which quickly reduces to
McGraw-Hill Ryerson

B
rS r0 (1 TC ) (r0 rB )
S
2003 McGrawHill Ryerson Limited

15-20

The Effect of Financial Leverage on the


Cost of Debt and Equity Capital
Cost of capital: r
(%)

rS r0

B
(1 TC ) (r0 rB )
SL

r0

rWACC

B
SL
rB (1 TC )
rS
BSL
B SL
rB

Debt-to-equity
ratio (B/S)
McGraw-Hill Ryerson

2003 McGrawHill Ryerson Limited

15-21

Total Cash Flow to Investors Under


Each Capital Structure with Corp. Taxes
All-Equity
EBIT
Interest
EBT
Taxes (Tc = 35%
Total Cash Flow to S/H

Recession
$1,000
0
$1,000
$350

Expected
$2,000
0
$2,000
$700

Expansion
$3,000
0
$3,000
$1,050

$650

$1,300

$1,950

LeveredRecession
EBIT
Interest ($800 @ 8% )
EBT
Taxes (Tc = 35%)
Total Cash Flow
(to both S/H & B/H):
EBIT(1-Tc)+TCrBB

$1,000$2,000
$3,000
640640
640
$360$1,360
$2,360
$126$476
$826
$234+640$468+$640$1,534+$640
$874$1,524
$2,174
$650+$224$1,300+$224$1,950+$224
$874$1,524

McGraw-Hill Ryerson

ExpectedExpansion

$2,174
2003 McGrawHill Ryerson Limited

15-22

Total Cash Flow to Investors Under


Each Capital Structure with Corp. Taxes
All-equity firm
S

Levered firm
S

The levered firm pays less in taxes than does the allequity firm.
Thus, the sum of the debt plus the equity of the levered
firm is greater than the equity of the unlevered firm.
McGraw-Hill Ryerson

2003 McGrawHill Ryerson Limited

15-23

Summary: No Taxes
In a world of no taxes, the value of the firm is unaffected by
capital structure.
This is M&M Proposition I:
VL = VU

Prop I holds because shareholders can achieve any pattern of


payouts they desire with homemade leverage.
In a world of no taxes, M&M Proposition II states that
leverage increases the risk and return to stockholders

B
rS r0 (r0 rB )
SL
McGraw-Hill Ryerson

2003 McGrawHill Ryerson Limited

15-24

Summary: Taxes
In a world of taxes, but no bankruptcy costs, the value of the
firm increases with leverage.
This is M&M Proposition I:
VL = VU + T C B

Prop I holds because shareholders can achieve any pattern of


payouts they desire with homemade leverage.
In a world of taxes, M&M Proposition II states that leverage
increases the risk and return to stockholders.

B
rS r0 (1 TC ) (r0 rB )
SL
McGraw-Hill Ryerson

2003 McGrawHill Ryerson Limited

15-25

Prospectus: Bankruptcy Costs


So far, we have seen M&M suggest that financial
leverage does not matter, or imply that taxes cause
the optimal financial structure to be 100% debt.
In the real world, most executives do not like a
capital structure of 100% debt because that is a state
known as bankruptcy.
In the next chapter we will introduce the notion of a
limit on the use of debt: financial distress.
Use this chapter to get comfortable with M&M
algebra.

McGraw-Hill Ryerson

2003 McGrawHill Ryerson Limited

Das könnte Ihnen auch gefallen