公司税和债务政策回顾.pptxVIP

Review;Topics Covered;MM (Debt Policy Doesn’t Matter);MM (Debt Policy Doesn’t Matter);Example - River Cruises - All Equity Financed;Example cont. 50% debt;Example - River Cruises - All Equity Financed - Debt replicated by investors;Financial Risk - Risk to shareholders resulting from the use of debt. Financial Leverage - Increase in the variability of shareholder returns that comes from the use of debt. Interest Tax Shield- Tax savings resulting from deductibility of interest payments. ;Example - You own all the equity of Space Babies Diaper Co.. The company has no debt. The company’s annual cash flow is $1,000, before interest and taxes. The corporate tax rate is 40%. You have the option to exchange 1/2 of your equity position for 10% bonds with a face value of $1,000. Should you do this and why?;Example - You own all the equity of Space Babies Diaper Co.. The company has no debt. The company’s annual cash flow is $1,000, before interest and taxes. The corporate tax rate is 40%. You have the option to exchange 1/2 of your equity position for 10% bonds with a face value of $1,000. Should you do this and why?; All Equity 1/2 Debt EBIT 1,000 1,000 Interest Pmt 0 100 Pretax Income 1,000 900 Taxes @ 40% 400 360 Net Cash Flow $600 $540;;Capital Structure;Capital Structure;Capital Structure;Capital Structure;Capital Structure;;;;;;Example 1;Example 1;Example 1;Example 2;Example 2;Example 2;Today’s RAF Debt vs Equity preference. Old Tax Code;Today’s RAF Debt vs Equity preference. New Tax Code;Today’s RAF Debt vs Equity preference.;Capital Structure;Weighted Average Cost of Capitalwithout taxes (traditional view);Financial Distress;Financial Distress;Financial Distress;Financial Choices;Investment FinancingInteraction;example: Project A has an NPV of $150,000. In order to finance the project we must issue stock, with a brokerage cost of $200,000. ;example: Project A has an NPV of $150,000. In order to finance the p