Ch15Capital Structure(澳大利亚新英格兰大学公司金融课件).ppt

Lecture 15 Capital Structure Basic Concepts Modigliani-Miller Proposition I (MMI) Proof of the Proposition MMI Proof of the Proposition MMI (continued) An Arbitrage argument for MMI Example 1 Example 1 (continued) Example 1 (continued) Example 1 (continued) Modigliani-Miller Proposition II (MMII) Proof of the Proposition MMII Example 2 Example 2 (continued) Example 3 1. All equity finance 1. All equity finance (continued) 1. All equity finance (continued) 2. Debt financing 2. Debt financing (continued) 2. Debt financing (continued) Effect of Corporate Taxes Effect of Corporate Taxes (continued) Effect of Corporate Taxes (continued) Effect of Corporate Taxes (continued) Example 4 Example 4 (continued) Example 4 (continued) Example 5 Example 5 (continued) Example 6 Example 6 (continued) Example 7 Example 7 (continued) From firm U From firm L * Focus on common stock and straight debt as representative financial instruments. We ignore default for now. The market value of the firm is V = B + S. Maximizing total firm value is in the interest of shareholders. Without bankruptcy, a change in firm value (leaving the level of debt and its characteristics unchanged) accrues to share-holders. Alternatively, if a firm borrows to pay a dividend, the increase in debt will reduce the market value of the equity. (dividends paid out) = (change in market value of B) (net value of the transaction to shareholders) = (change in market value of S) + (change in market value of B) The firm’s market value is independent of its capital structure, if Investors care only about risks and returns there is perfect competition everyone is price taker firms and investors (using equities as collateral) can borrow and lend at the same rate there is equal access to all relevant information there are no transaction costs or market frictions such as taxes, issue costs or bankruptcy costs All investors share common view of securities returns Capital markets are perfect in the sense that A proportion