Capital Structure and Leverage参考.ppt

* * * * * * * * * * * * * * * * * * * * * * * * * Table for Calculating Levered Betas and Costs of Equity Amount Borrowed D/Cap. Ratio D/E Ratio Levered Beta rs $ 0 0% 0% 1.00 12.00% 250 12.50 14.29 1.09 12.51 500 25.00 33.33 1.20 13.20 750 37.50 60.00 1.36 14.16 1,000 50.00 100.00 1.60 15.60 14-* Finding Optimal Capital Structure The firm’s optimal capital structure can be determined two ways: Minimizes WACC. Maximizes stock price. Both methods yield the same results. 14-* Table for Calculating Levered Betas and Costs of Equity Amount Borrowed D/Cap. Ratio E/Cap. Ratio rs rd(1 – T) WACC $ 0 0% 100% 12.00% -- 12.00% 250 12.50 87.50 12.51 4.80% 11.55 500 25.00 75.00 13.20 5.40% 11.25 750 37.50 62.50 14.16 6.90% 11.44 1,000 50.00 50.00 15.60 8.40% 12.00 14-* Stock Price with Zero Growth If all earnings are paid out as dividends, E(g) = 0. EPS = DPS. To find the expected stock price ( ), we must find the appropriate rs at each of the debt levels discussed. 14-* Determining the Stock Price Maximizing Capital Structure Amount Borrowed DPS rs P0 $ 0 $3.00 12.00% $25.00 250 3.26 12.51 26.03 500 3.55 13.20 26.89 750 3.77 14.16 26.59 1,000 3.90 15.60 25.00 14-* What debt ratio maximizes EPS? Maximum EPS = $3.90 at D = $1,000,000, and D/Cap. = 50%. (Remember DPS = EPS because payout = 100%.) Risk is too high at D/Cap. = 50%. 14-* What is Campus Deli’s optimal capital structure? P0 is maximized ($26.89) at D/Cap. = $500,000/$2,000,000 = 25%, so optimal D/Cap. = 25%. EPS is maximized at 50%, but primary interest is stock price, not E(EPS). The example shows that we can push up E(EPS) by using more debt, but the risk resulting from increased leverage more than offsets the benefit of higher E(EPS). 14-* What if there were more/less business risk than originally estimated, how would the analysis be affected? If there were higher business risk, then the probability of financ