Chapter 17 Corporate Finance 公司理财 Ross PPT课件精编版

1、Chapter 17,Valuation and Capital Budgeting for the Levered Firm,1,Chapter 17,Executive Summary,Financing and Investment decisions are actually related. A project of an all-equity firm might be rejected, while the same project might be accepted for a levered but otherwise identical firm. Previously we assume that the firm is financed with equity only. The goal of this chapter is to value a project, or the firm itself, when leverage is employed.,2,Chapter 17,Executive Summary,Three standard approa

2、ches to valuation under leverage: APV (adjusted-present-value) FTE (flow-to-equity) WACC (weighted-average-cost-of-capital),3,Chapter 17,17.1 Adjusted-Present-Value Approach,APV = NPV + NPVF APV: adjusted present value NPV: value of the project to an unlevered firm NPVF: net present value of the financing side effects.,4,Chapter 17,17.1 Adjusted-Present-Value Approach,One can generally think of four side effects The Tax Subsidy to Debt The Costs of Issuing New Securities The costs of Financial D

3、istress Subsidies to Debt Financing We consider the tax subsidy only in the following example. Example One (page 469),5,Chapter 17,17.1 Adjusted-Present-Value Approach,Conclusion from the example: The value of the project when financed with some leverage is equal to the value of the project when financed with all equity plus the tax shield from the debt.,6,Chapter 17,17.2 Flow-To-Equity Approach,The Flow-to-Equity approach is an alternative capital budgeting approach. The fomula simply calls for

4、 discounting the cash flow from the project to the equityholders of the levered firm at the cost of equity capital, rs.,7,Chapter 17,17.2 Flow-To-Equity Approach,There are three steps to the FTE approach Step 1: Calculating Levered Cash Flow (LCF) Step 2: Calculating rs Step 3: Valuation,8,Chapter 17,17.3 Weighted-Average-Cost-of-Capital Method,9,Chapter 17,17.4 A Comparison of the APV, FTE, and WACC Approaches,Capital budgeting techniques in the early chapters of this text applied to all-equity

5、 firms. Capital budgeting for the levered firm could not be handled early in the book because the effects of debt on firm value were deferred until the previous two chapters.,10,Chapter 17,17.4 A Comparison of the APV, FTE, and WACC Approaches,Debt increases firm value through tax benefits but decreases value through bankruptcy and related costs. APV first values the project on an all-equity basis, and then add the net present value of the debt.,11,Chapter 17,17.4 A Comparison of the APV, FTE, a

6、nd WACC Approaches,The FTE approach discounts the after-tax cash flow from a project going to the equityholders of a levered firm (LCF). The discount rate is rs, which shows that leverage raises the risk to the equityholders.,12,Chapter 17,17.4 A Comparison of the APV, FTE, and WACC Approaches,All three approaches perform the same task: valuation in the presence of debt financing, all three provide the same valuation estimate. The three approaches are markedly different in technique.,13,Chapter

7、17,17.4 A Comparison of the APV, FTE, and WACC Approaches,Comparison: APV versus WACC APV and WACC display the greatest similarity. Both approaches put the unlevered cash flow (UCF) in the numerator. However, the APV discounts at r0, the WACC discounts at rWACC. Both approaches adjust the basic NPV formula for unlevered firms in order to reflect the tax benefit of leverage.,14,Chapter 17,17.4 A Comparison of the APV, FTE, and WACC Approaches,Comparison: Entity Being Valued. The FTE approach appe

8、ars at first glance to be far different from the other two. For the FTE, only the firms contribution to the initial investment is subtracted out. Under FTE, only the future cash flows to the levered equityholders are valued.,15,Chapter 17,17.4 A Comparison of the APV, FTE, and WACC Approaches,A suggested Guideline NPV of project is exactly the same under each of the three methods. However, one method usually provides an easier computation than another, and, in many cases, one or more of the meth

9、ods are virtually impossible computationally.,16,Chapter 17,17.4 A Comparison of the APV, FTE, and WACC Approaches,A Suggested Guideline Use WACC or FTE if the firms target debt-to-value ratio applies to the project over its life. Use APV if the projects level of debt is known over the life of the project.,17,Chapter 17,17.5 Capital Budgeting When The Discount Rate Must Be Estimated,The previous sections of this chapter introduced APV, FTE, and WACCthe three basic approaches to valuing a levered

10、 firm. One important detail remains, we assumed a discount rate. We now want to show how this rate is determined for real-world firms with leverage.,18,Chapter 17,17.6 APV Example,If firms set a target debt-to-equity ratio, we use WACC and FTE for capital budgeting. However, as we mentioned earlier, APV is the preferred approach when there are side benefits and side costs to debt. An example, in addition to the tax subsidy to debt, both flotation costs and interest subsidies come into play.,19,C

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