corporate finance公司理财CAPM and WACC.ppt

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * FIN 751 – T. Barkley – CAPM and WACC Asset Beta (cont) If βD = 0 and Tc = 0, then βA = βE×[E/(E+D)] OR βE = βA×[1 + (D/E)] Business Risk Financial Risk LN5.* FIN 751 – T. Barkley – CAPM and WACC Asset Beta (cont) With the tax-shield benefit of debt, the formula becomes: βE = βA×[1 + (1 - Tc)(D/E)] where Tc is the (marginal) corporate tax rate LN5.* FIN 751 – T. Barkley – CAPM and WACC Unlevering and Relevering Given an unlevered or “all-equity” beta and a D/E ratio, an equity beta can be calculated by levering the asset beta For our purposes (and most real-world applications), the simpler formula is sufficient (that is, assuming βD = 0 and no taxes) LN5.* FIN 751 – T. Barkley – CAPM and WACC Unlevering and Relevering (cont) The cost of equity is sensitive to the D/E ratio When the level of debt increases, the cost of equity goes up also, reflecting the facts that: Debt has priority over assets on the firm’s risky cash flows (asset risk) Equityholders only get what is left after debtholders are paid off first (financial risk) The adjustment to reflect the effects of leverage on the cost of equity can be understood with betas, but it is necessary to unlever and relever betas LN5.* FIN 751 – T. Barkley – CAPM and WACC Unlevering and Relevering– Example Consider a company with βE = 1.2 βD = 0.0 D/E = 1.0 (Ignore taxes, for simplicity) The company wants to change its D/E ratio from 1.0 to 1.5. What is the new βE? LN5.* FIN 751 – T. Barkley – CAPM and WACC Unlevering and Relevering– Example (cont) βA = βE×[E/(E+D)] = = βEnew = βA×[1 + (D/E)] = = βE increased from 1.2 to ___ because of the increase in financial risk LN5.* FIN 751 – T. Barkley – CAPM and WACC What Determines Beta? Four factors (among many) play crucial roles: The higher each of these, the higher the beta LN5.* FIN 751 – T. Barkley – CAPM and WACC