公司理财(罗斯)(英文)培训教案.ppt

16-* 16.11 Summary and Conclusions Because costs of financial distress can be reduced but not eliminated, firms will not finance entirely with debt. Debt (B) Value of firm (V) 0 Present value of taxshield on debt Present value offinancial distress costs Value of firm underMM with corporatetaxes and debt VL = VU + TCB V = Actual value of firm VU = Value of firm with no debt B* Maximumfirm value Optimal amount of debt 16-* 16.11 Summary and Conclusions If distributions to equity holders are taxed at a lower effective personal tax rate than interest, the tax advantage to debt at the corporate level is partially offset. In fact, the corporate advantage to debt is eliminated if (1-TC) × (1-TS) = (1-TB) Debt (B) Value of firm (V) 0 Present value of taxshield on debt Present value offinancial distress costs Value of firm underMM with corporatetaxes and debt VL = VU + TCB V = Actual value of firm VU = Value of firm with no debt B* Maximumfirm value Optimal amount of debt VL VU + TCB when TS TB but (1-TB) (1-TC)×(1-TS) Agency Cost of Equity Agency Cost of Debt 16-* 16.11 Summary and Conclusions Debt-to-equity ratios vary across industries. Factors in Target D/E Ratio Taxes If corporate tax rates are higher than bondholder tax rates, there is an advantage to debt. Types of Assets The costs of financial distress depend on the types of assets the firm has. Uncertainty of Operating Income Even without debt, firms with uncertain operating income have high probability of experiencing financial distress. 16-* Multiple choices 1. The MM theory with taxes implies that firms should issue maximum debt. In practice, this is not true because A) debt is more risky than equity. B) bankruptcy is a disadvantage to debt. C) the payment of personal taxes will partially offset the tax benefit of debt. D) Both A and B. E) Both B and C. 16-* 2. The TrunkLine Company will earn $60 if it does well. The debtholders are promised payments of $35 if the firm does w