CH10TheCostofCapital财务管理英文版.ppt
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财务管理 英文版ppt
– Unlimited liability to the owner – Profits and losses are taxed as though they belong to the individual owner
1-14
Partnership
• Similar to sole proprietorship except there are two or more owners
– B2C model:
• Products are bought with credit cards • Credit card checks are performed • Selling firms get the cash flow faster
– B2B model can help companies
• At the turn of the century: Emerged as a field separate from economics • By 1930s: Financial practices revolved around such topics as:
– Preservation of capital – Maintenance of liquidity – Reorganization of financially troubled corporations – Bankruptcy process
• Lower the cost of managing inventory, accounts receivable, and cash
1-9
Financial Management
Financial management or business finance is concerned with managing an entity’s money Functions:
1-14
Partnership
• Similar to sole proprietorship except there are two or more owners
– B2C model:
• Products are bought with credit cards • Credit card checks are performed • Selling firms get the cash flow faster
– B2B model can help companies
• At the turn of the century: Emerged as a field separate from economics • By 1930s: Financial practices revolved around such topics as:
– Preservation of capital – Maintenance of liquidity – Reorganization of financially troubled corporations – Bankruptcy process
• Lower the cost of managing inventory, accounts receivable, and cash
1-9
Financial Management
Financial management or business finance is concerned with managing an entity’s money Functions:
成本预算英文版课件(PPT87页)
a
Annuity, or equal amount, received or paid at the end of each
period for n periods
r
Rate of return required, or expected, from an investment
opportunity; the rate of interest earned on an investment
• For simplicity, the following notation is used:
Abbr.
Meaning
n
Number of periods considered in the investment analysis;
common period lengths are a month, a quarter, or a year
Reduce an organization’s flexibility
11-4
Meaning of Capital Budgeting
• Capital budgeting can be defined as the process of analyzing, evaluating, and deciding whether resources should be allocated to a project or not.
11-13
Types of Interest
Simple Interest
Interest paid (earned) on only the original amount, or principal borrowed (lent).
CHAPTER9 The Cost of Capital (《财务管理基础》PPT课件)
If earnings are retained, there is an opportunity cost (the return that stockholders could earn on alternative investments of equal risk).
Investors could buy similar stocks and earn ks. Firm could repurchase its own stock and earn ks. Therefore, ks is the cost of retained earnings.
9-16
WHY IS THERE A COST FOR RETAINED
EARNINGS?
Earnings can be reinvested or paid out as dividends.
Investors could buy other securห้องสมุดไป่ตู้ties, earn a return.
debt is often used as a measure of kd. Why tax-adjust, i.e. why kd(1-T)?
9-7
A 15-YEAR, 12% SEMIANNUAL COUPON BOND SELLS FOR $1,153.72. WHAT IS THE COST OF DEBT (KD)?
A-T kp = kp – kp (1 – 0.7)(T) = 9% - 9% (0.3)(0.4)
A-T kd = 10% - 10% (0.4)
= 7.92% = 6.00%
A-T Risk Premium on Preferred = 1.92%
Investors could buy similar stocks and earn ks. Firm could repurchase its own stock and earn ks. Therefore, ks is the cost of retained earnings.
9-16
WHY IS THERE A COST FOR RETAINED
EARNINGS?
Earnings can be reinvested or paid out as dividends.
Investors could buy other securห้องสมุดไป่ตู้ties, earn a return.
debt is often used as a measure of kd. Why tax-adjust, i.e. why kd(1-T)?
9-7
A 15-YEAR, 12% SEMIANNUAL COUPON BOND SELLS FOR $1,153.72. WHAT IS THE COST OF DEBT (KD)?
A-T kp = kp – kp (1 – 0.7)(T) = 9% - 9% (0.3)(0.4)
A-T kd = 10% - 10% (0.4)
= 7.92% = 6.00%
A-T Risk Premium on Preferred = 1.92%
财务管理专业英语PPT课件
2020/2/21
山东轻工业学院商学院
9
1）Account、Accounting & Accountant
Accountant：会计师、会计人员 Certified Public Accountant 注册会计师（CPA）
2020/2/21
山东轻工业学院商学院
10
2）Assets、Liabilities & Owner’s Equity
2020/2/21
山东轻工业学院商学院
16
Cash
$50,000 Current liabilities (4)
Accounts receivable 50,000 Long-term debt
(5)
Inventory
(1)
Shareholders’ equity (6)
Plant and equipment
10% Total assets turnover = 2 times Sales = $2 million Debt ratio = 50%
9. Capital Structure 资本结构
10. Dividend Policy 股利政策
11. Working Capital Management 营运资本管理
2020/2/21
山东轻工业学院商学院
5
一、Contents—内容
12. International Financial Management 国际财务管理
会计科目；账户
2020/2/21
山东轻工业学院商学院
8
1）Account、Accounting & Accountant
Accounting：会计、会计学 Financial Accounting and Managerial Accounting are two major specialized fields in Accounting. 财务会计和管理会计是会 计的两个主要的专门领域。 Accounting elements 会计要素
财务管理英文课件 (10)
nBut calculations get complicated.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
10 - 21
Find ks using the own-bond-yield-plusrisk-premium method. (kd = 10%, RP = 4%.)
nEarnings can be reinvested or paid out as dividends.
nInvestors could buy other securities, earn a return.
nThus, there is an opportunity cost if earnings are retained.
INPUTS OUTPUT
30
-1153.72 60 1000
N I/YR PV PMT FV
5.0% x 2 = kd = 10%
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
Component Cost of Debt
10 - 6
nInterest is tax deductible, so
nHowever, firms try to pay preferred dividend. Otherwise, (1) cannot pay common dividend, (2) difficult to raise additional funds, (3) preferred stockholders may gain control of firm.
Copyright © 2001 by Harcourt, Inc.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
10 - 21
Find ks using the own-bond-yield-plusrisk-premium method. (kd = 10%, RP = 4%.)
nEarnings can be reinvested or paid out as dividends.
nInvestors could buy other securities, earn a return.
nThus, there is an opportunity cost if earnings are retained.
INPUTS OUTPUT
30
-1153.72 60 1000
N I/YR PV PMT FV
5.0% x 2 = kd = 10%
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
Component Cost of Debt
10 - 6
nInterest is tax deductible, so
nHowever, firms try to pay preferred dividend. Otherwise, (1) cannot pay common dividend, (2) difficult to raise additional funds, (3) preferred stockholders may gain control of firm.
Copyright © 2001 by Harcourt, Inc.
《财务管理基础》英文ppt课件
Limited Partnership -- limited partners have liability limited to their capital contribution (investors only). At least one general partner is required and all general partners have unlimited liability.
2. Understand how to calculate a corporation's taxable income and how to determine the corporate tax rate - both average and marginal.
3. Understand various methods of depreciation. 4. Understand why acquiring assets through the use of debt
individual form
Disadvantages
• Unlimited liability • Hard to raise
additional capital • Transfer of
ownership difficulties
2-6
The Business Environment
Partnership -- A business form in which two or more individuals act as owners.
• Easy transfer of
• More diffiablish
• Unlimited life
• More expensive to
2. Understand how to calculate a corporation's taxable income and how to determine the corporate tax rate - both average and marginal.
3. Understand various methods of depreciation. 4. Understand why acquiring assets through the use of debt
individual form
Disadvantages
• Unlimited liability • Hard to raise
additional capital • Transfer of
ownership difficulties
2-6
The Business Environment
Partnership -- A business form in which two or more individuals act as owners.
• Easy transfer of
• More diffiablish
• Unlimited life
• More expensive to
财务管理英文版.ppt
210
Total Equity $1,139
Total Liab/Equitya,b $2,169
a. Note, Assets = Liabilities + Equity.
b. What BW owed and ownership position.
c. Owed to suppliers for goods and services.
d. Unpaid wages, salaries, etc.
e. Debts payable < 1 year. f. Debts payable > 1 year. g. Original investment. h. Earnings reinvested.
Basket Wonders’ Income Statement
Financial Statement Analysis
Financial Statements A Possible Framework for Analysis Balance Sheet Ratios Income Statement and Income
Statement/Balance Sheet Ratios Trend Analysis Common-Size and Index Analysis
Ⅰ.Primary Types of Financial Statements
Balance Sheet
A summary of a firm’s financial position on a given date that shows total assets = total liabilities + owners’ equity. Income Statement
公司理财英文版课件Chap010
• MACRS
– Need to know which asset class is appropriate for tax purposes – Multiply percentage given in table by the initial cost – Depreciate to zero – Mid-year convention
2
$51,780
3
$51,780 20,000
CFFA
-$110,00
$51,780
$51,780
$71,780
10-10
Making The Decision
• Now that we have the cash flows, we can apply the techniques that we learned in Chapter 9 • Enter the cash flows into the calculator and compute NPV and IRR
10-6
Pro Forma Statements and Cash Flow
• Capital budgeting relies heavily on pro forma accounting statements, particularly income statements • Computing cash flows – refresher
NFA
Total
90,000
$110,000
60,000
$80,000
30,000
$50,000
0
$20,000
10-9
Table 10.5 Projected Total Cash Flowin NWC NCS -$20,000 -$90,000
财务管理英文版(PPT 60页)
13-2
13-3
Proposed Project Data
Julie Miller is evaluating a new project for her firm, Basket Wonders (BW).
She has determined that the after-tax cash flows for the project will be
$40,000 = $10,000(.909) + $12,000(.826) + $15,000(.751) + $10,000(.683) + $ 7,000(.621)
$40,000 = $9,090 + $9,912 + $11,265 + $6,830 + $4,347
= $41,444 [Rate is too low!!]
$1,444 $4,603
X
$1,444
.05 = $4,603
13-15
IRR Solution (Interpolate)
X .05
.10 $41,444 IRR $40,000 .15 $36,841
$1,444 $4,603
X
$1,444
.05 = $4,603
13-16
IRR Solution (Interpolate)
13-13
IRR Solution (Try 15%)
$40,000 = $10,000(PVIF15%,1) + $12,000(PVIF15%,2) + $15,000(PVIF15%,3) + $10,000(PVIF15%,4) + $ 7,000(PVIF15%,5)
13-3
Proposed Project Data
Julie Miller is evaluating a new project for her firm, Basket Wonders (BW).
She has determined that the after-tax cash flows for the project will be
$40,000 = $10,000(.909) + $12,000(.826) + $15,000(.751) + $10,000(.683) + $ 7,000(.621)
$40,000 = $9,090 + $9,912 + $11,265 + $6,830 + $4,347
= $41,444 [Rate is too low!!]
$1,444 $4,603
X
$1,444
.05 = $4,603
13-15
IRR Solution (Interpolate)
X .05
.10 $41,444 IRR $40,000 .15 $36,841
$1,444 $4,603
X
$1,444
.05 = $4,603
13-16
IRR Solution (Interpolate)
13-13
IRR Solution (Try 15%)
$40,000 = $10,000(PVIF15%,1) + $12,000(PVIF15%,2) + $15,000(PVIF15%,3) + $10,000(PVIF15%,4) + $ 7,000(PVIF15%,5)
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ks = kd + RP
= 10.0% + 4.0% = 14.0%
This RP CAPM RP.
Produces ballpark estimate of ks. Useful check.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
Example:
10 - 12
kp = 9% kd = 10% T = 40%
kp, AT = kp – kp (1 – 0.7)(T) = 9% – 9%(0.3)(0.4) =
7.92%.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
10 - 16
What’s the cost of common equity based on the CAPM?
kRF = 7%, RPM = 6%, b = 1.2.
ks = kRF + (kM – kRF )b.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
10 - 20
Could DCF methodology be applied if g is not constant?
YES, nonconstant g stocks are expected to have constant g at some point, generally in 5 to 10 years.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
10 - 5
A 15-year, 12% semiannual bond sells for $1,153.72. What’s kd?
0
1
i=?
-1,153.72
60
2
...
60
30 60 + 1,000
Note:
Preferred dividends are not tax deductible, so no tax adjustment. Just kp.
Nominal kp is used. Our calculation ignores flotation
costs.
Copyright © 2001 by Harcourt, Inc.
kd, AT = 10% – 10%(0.4) =
6.00%.
A-T Risk Premium on Preferred = 1.92%.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
10 - 13
Why is there a cost for retained earnings?
What’s the expected future g?
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
Retention growth rate:
10 - 19
g = (1 – Payout)(ROE) = 0.35(15%) = 5.25%.
ks
=
D1 P0
+
g
=
D0(1 + P0
g)
+g
= $4.19(1.05) + 0.05 $50
= 0.088 + 0.05
= 13.8%.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
10 - 18
Suppose the company has been earning 15% on equity (ROE = 15%) and retaining 35% (dividend payout = 65%), and this situation is expected to continue.
But calculations get complicated.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
10 - 21
Find ks using the own-bond-yield-plusrisk-premium method. (kd = 10%, RP = 4%.)
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
10 - 14
Opportunity cost: The return stockholders could earn on alternative investments of equal risk.
Use nominal rate. Flotation costs small.
Ignore.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
10 - 7
What’s the cost of preferred stock? Pp = $111.10; 10%Q; Par = $100.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
10 - 2
What types of capital do firms use?
Debt Preferred stock Common equity:
Retained earnings New common stock
Use this formula:
kp
Dp Pp
$10 $111.10
0.090
9.0%.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
10 - 8
Picture of Preferred Stock
0
kp = ?
1
-111.1
2.50
= 7.0% + (6.0%)1.2 = 14.2%.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
10 - 17
What’s the DCF cost of common equity, ks? Given: D0 = $4.19; P0 = $50; g = 5%.
All rights reserved.
10 - 10
Is preferred stock more or less risky to investors than debt?
More risky; company not required to pay preferred dividend.
However, firms try to pay preferred dividend. Otherwise, (1) cannot pay common dividend, (2) difficult to raise additional funds, (3) preferred stockholders may gain control of firm.
OUTPUT
30
-1153.72 60 1000
N I/YR PV PMT FV
5.0% x 2 = kd = 10%
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
Component Cost of Debt
10 - 6
Interest is tax deductible, so kd AT = kd BT(1 – T) = 10%(1 – 0.40) = 6%.
10 - 1
CHAPTER 10
The Cost of Capital
Cost of capital components Accounting for flotation costs WACC Adjusting cost of capital for risk Estimating project risk
Earnings can be reinvested or paid out as dividends.
Investors could buy other securities, earn a return.
Thus, there is an opportunity cost if earnings are retained.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
10 - 3
Should we focus on before-tax or after-tax capital costs?
Stockholders focus on A-T CFs. Therefore, we should focus on A-T capital costs, i.e., use A-T costs in WACC. Only kd needs adjustment.
They could buy similar stocks and earn ks, or company could repurchase its own stock and earn ks. So, ks is the cost of retained earnings.