公司财务financing7.pptVIP

To guess is cheap. To guess wrong is expensive. In 2000, Philip Morris generated in cash $11billion. It paid 4.5b as dividends, repurchased shares for 3.6b 2.9b was reinvested in business. The company borrowed 10.9b and raised 100m thru equity. Financing Independence of Financing Investment decisions Reversible NPVs of Financing Vast variety of Financing Instruments Dividend / Debt vs Equity Should the firm retain most of its earnings in the business, or should it pay them out as dividends? If the firm needs more money, should it issue more stock or should it borrow? Should it borrow short-term or long-term? Should it borrow by issuing a normal long-term bond or a convertible bond. Capital Structure Debt equity mix Fixed residual claims Impact on value/ cost of capital Efficient Markets Stock prices fully reflect available information Future price changes are random Implications Investors can expect only normal returns Firms receive fair value for securities that they sell Value addition from financing activity? Positive NPV financing options? Cost of Capital Hurdle rate for projects Valuation of companies Finding economic value added Weighted Average Cost of Capital Funding thru debt and equity WACC is a weighted average cost of debt and equity Weights for debt and equity are targetted capital structure, in terms of market values The component cost of capital are investor-required rates of return. Weighted Average Cost of Capital Coc = rD (1-t)(D/ (D+E)) + rE ( E/ (D+E)) rD = Cost of Debt rE = Cost of Equity rA = Operating Income/ Market Value of the Firm Market value of the firm = value of debt + value of equity Our cost of capital is calculated using the approximate market value weightings of debt and equity used to finance the company. The cost of debt is simply our after-tax, long-term debt rate, which is around 5.7%. The cost of equity is approximately 11.4%.- The Quaker Oats Company, 1992 Annual Report. WACC numerical Cost of debt