Chapter 17 Corporate Finance 公司理财 机械工业出版社 Ross PPT课件umj.pptx
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1、Chapter 17Valuation and Capital Budgeting for the Levered Firm1 1Chapter 17Chapter 17Executive SummaryFinancing and Investment decisions are actually Financing and Investment decisions are actually related.related.A project of an all-equity firm might be rejected,A project of an all-equity firm migh
2、t be rejected,while the same project might be accepted for a while the same project might be accepted for a levered but otherwise identical firm.levered but otherwise identical firm.Previously we assume that the firm is financed Previously we assume that the firm is financed with equity only.The goa
3、l of this chapter is to with equity only.The goal of this chapter is to value a project,or the firm itself,when leverage value a project,or the firm itself,when leverage is employed.is employed.2 2Chapter 17Chapter 17Executive SummaryThree standard approaches to valuation under leverage:APV(adjusted
4、-present-value)APV(adjusted-present-value)FTE(flow-to-equity)FTE(flow-to-equity)WACC(weighted-average-cost-of-capital)WACC(weighted-average-cost-of-capital)3 3Chapter 17Chapter 1717.1 Adjusted-Present-Value ApproachAPV=NPV+NPVFAPV:adjusted present valueAPV:adjusted present valueNPV:value of the proj
5、ect to an unlevered firmNPV:value of the project to an unlevered firmNPVF:net present value of the financing side NPVF:net present value of the financing side effects.effects.4 4Chapter 17Chapter 1717.1 Adjusted-Present-Value ApproachOne can generally think of four side effectsThe Tax Subsidy to Deb
6、tThe Tax Subsidy to DebtThe Costs of Issuing New SecuritiesThe Costs of Issuing New SecuritiesThe costs of Financial DistressThe costs of Financial DistressSubsidies to Debt FinancingSubsidies to Debt FinancingWe consider the tax subsidy only in the following We consider the tax subsidy only in the
7、following example.example.Example One(page 469)Example One(page 469)5 5Chapter 17Chapter 1717.1 Adjusted-Present-Value ApproachConclusion from the example:The value of the project when financed with The value of the project when financed with some leverage is equal to the value of the some leverage
8、is equal to the value of the project when financed with all equity plus the project when financed with all equity plus the tax shield from the debt.tax shield from the debt.6 6Chapter 17Chapter 1717.2 Flow-To-Equity ApproachThe Flow-to-Equity approach is an alternative capital budgeting approach.The
9、 fomula simply calls for discounting the cash flow from the project to the equityholders of the levered firm at the cost of equity capital,rs.s.7 7Chapter 17Chapter 1717.2 Flow-To-Equity ApproachThere are three steps to the FTE approachStep 1:Calculating Levered Cash Flow(LCF)Step 1:Calculating Leve
10、red Cash Flow(LCF)Step 2:Calculating rStep 2:Calculating rs sStep 3:ValuationStep 3:Valuation8 8Chapter 17Chapter 1717.3 Weighted-Average-Cost-of-Capital Method9 9Chapter 17Chapter 1717.4 A Comparison of the APV,FTE,and WACC ApproachesCapital budgeting techniques in the early chapters of this text a
11、pplied to all-equity 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.1010Chapter 17Chapter 1717.4 A Comparison of the APV,FTE,and WACC ApproachesDebt increases firm value throu
12、gh 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.1111Chapter 17Chapter 1717.4 A Comparison of the APV,FTE,and WACC ApproachesThe FTE approach discounts the after-tax cash flow f
13、rom a project going to the equityholders of a levered firm(LCF).The discount rate is rs s,which shows that leverage raises the risk to the equityholders.1212Chapter 17Chapter 1717.4 A Comparison of the APV,FTE,and WACC ApproachesAll three approaches perform the same task:valuation in the presence of
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