《财务管理基础》英文课件ch17.ppt

Chapter 17 Capital Structure Determination After studying Chapter 17, you should be able to: Define “capital structure.” Explain the net operating income (NOI) approach to capital structure and valuation of a firm; and, calculate a firms value using this approach. Explain the traditional approach to capital structure and the valuation of a firm. Discuss the relationship between financial leverage and the cost of capital as originally set forth by Modigliani and Miller (MM) and evaluate their arguments. Describe various market imperfections and other real world factors that tend to dilute MM’s original position. Present a number of reasonable arguments for believing that an optimal capital structure exists in theory. Explain how financial structure changes can be used for financial signaling purposes, and give some examples. Capital Structure Determination A Conceptual Look The Total-Value Principle Presence of Market Imperfections and Incentive Issues The Effect of Taxes Taxes and Market Imperfections Combined Financial Signaling Timing and Flexibility Financing Checklist Capital Structure Concerned with the effect of capital market decisions on security prices. Assume: (1) investment and asset management decisions are held constant and (2) consider only debt-versus-equity financing. A Conceptual Look --Relevant Rates of Return ki = the yield on the company’s debt A Conceptual Look --Relevant Rates of Return A Conceptual Look --Relevant Rates of Return Capitalization Rate Net Operating Income Approach Assume: Net operating income equals $1,350 Market value of debt is $1,800 at 10% interest Overall capitalization rate is 15% Required Rate of Return on Equity Total firm value = O / ko = $1,350 / .15 = $9,000 Market value = V - B = $9,000 - $1,800 of equity = $7,200 Required return = E / S on equity* = ($1,350 - $180) / $7,200 = 16.25% Required Rate of Return on Equity Total firm value = O / ko = $1,350 / .15 = $9,000 Market value = V - B = $9,