公司理财英文版第十六章.ppt

Key Concepts and Skills Understand the effect of financial leverage on cash flows and the cost of equity Understand the impact of taxes and bankruptcy on capital structure choice Understand the basic components of the bankruptcy process Chapter Outline The Capital Structure Question The Effect of Financial Leverage Capital Structure and the Cost of Equity Capital MM Propositions I and II with Corporate Taxes Bankruptcy Costs Optimal Capital Structure The Pie Again The Pecking-Order Theory Observed Capital Structures A Quick Look at the Bankruptcy Process Capital Restructuring We are going to look at how changes in capital structure affect the value of the firm, all else equal Capital restructuring involves changing the amount of leverage a firm has without changing the firm’s assets The firm can increase leverage by issuing debt and repurchasing outstanding shares The firm can decrease leverage by issuing new shares and retiring outstanding debt Choosing a Capital Structure What is the primary goal of financial managers? Maximize stockholder wealth We want to choose the capital structure that will maximize stockholder wealth We can maximize stockholder wealth by maximizing the value of the firm or minimizing the WACC The Effect of Leverage How does leverage affect the EPS and ROE of a firm? When we increase the amount of debt financing, we increase the fixed interest expense If we have a really good year, then we pay our fixed cost and we have more left over for our stockholders If we have a really bad year, we still have to pay our fixed costs and we have less left over for our stockholders Leverage amplifies the variation in both EPS and ROE Example: Financial Leverage, EPS and ROE – Part I We will ignore the effect of taxes at this stage What happens to EPS and ROE when we issue debt and buy back shares of stock? Example: Financial Leverage, EPS and ROE – Part II Variability in ROE Current: ROE ranges from 6% to 20% Proposed: ROE ranges from 2% to 30% Variabilit