第3讲-资本成本与资本预算.pptVIP

* Chapter 3 资本成本与资本预算 * 资本成本的计算方法 Section Topic Summary 1 Risk-return relationship To calculate an NPV, a cost of capital is needed. The higher the risk faced by the investor, the higher the return they will expect to be paid. 2 Cost of equity – the dividend growth model* 3 Cost of equity - CAPM 4 Cost of irredeemable debt * * 资本成本的计算方法 Section Topic Summary 5/6 Cost of redeemable or convertible debt Kd =IRR of the cash flows 7 Cost of preference shares * 8 Cost of a loan* Kd = interest x (1-t) 9 WACC These costs are then put into the WACC formula (given) to calculate the costs of capital for a project. * The dividend growth model The dividend growth model Weakness of the dividend growth model – dose not incorporate risk – do not growth smoothly in reality – do not take capital gains into account – no allowance is made for the effects of taxation – assumes there are no issue for new shares * The capital asset pricing model (CAPM) Market or systematic risk non-systematic or unsystematic risk Systematic risk and unsystematic risk: implications Systematic risk and the CAPM Market risk and returns The CAPM formula – E(ri) = Rf + βi(E(rm)- Rf ) Problems with applying the CAPM in practice * % of total finance that is equity % of total finance that is debt WACC = Ve Ke + Vd Kd (1-T) Ve+Vd Ve+Vd WACC formula * CAPM and MM combined- geared betas The connection between MM theory and the CAPM means that it is possible to establish a mathematical relationship between the β value of an ungeared company and the β value of a similar, but geared, company. * Lecture example BPP has a debt: equity ratio of 1:2. It wishes to expand into recruitment consultancy. It has identified that the Beta of a highly geared recruitment consultancy company (company X) is 1.8 - this is its equity beta and is influenced by its high level of gearing of 1:1 debt to equity. Assume that debt has a beta of 0.