公司金融Chap016.ppt

13.* Lecture Tip: Slides 16.25 through 16.27 provide a discussion of the effect of corporate taxes on Proposition II. These slides can be hidden if you don’t wish to discuss it in class. 13.* Remind students that a D/E ratio = 1 implies 50% equity and 50% debt. The amount of leverage in the firm increased, so the cost of equity increased. But, the overall cost of capital decreased. 13.* Note that we are talking about “expected” in a statistical sense. If the firm goes bankrupt, it will have a certain level of costs it will incur. If the firm is all equity, then the expected bankruptcy cost is 0 since the probability of bankruptcy is 0. As the firm adds debt, the probability of incurring the bankruptcy costs increases, and thus the expected bankruptcy cost increases. 13.* Real-World Tip: In 1997, the remaining assets of Fruehauf Corporation, described by Barrons as “the once-dominant” manufacturer of truck trailers, were sold off for a mere $50 million, bringing an end to the story of a great firm laid low by over-reliance on debt financing. More on this case is provided in the IM. 13.* International Note: In theory, the static model of capital structure described in this section applies to multinational firms as well as to domestic firms. The multinational firm should seek to minimize its global cost of capital by balancing the debt-related tax shields across all of the countries in which the firm does business against global agency and bankruptcy costs. However, this assumes that worldwide capital markets are well-integrated and that foreign exchange markets are highly efficient. In such an environment, financial managers would seek the optimal global capital structure. In practice, of course, the existence of capital market segmentation, differential taxes, and regulatory frictions make the determination of the global optimum much more difficult than the theory would suggest. 13.* See Table 16.7 in the book for more detail 13.* Lecture Tip: It has been said that