《财务管理：理论与实践》（Brigham）的教学PPTCh 17 Show.ppt

Agency costs: The costs of managers not behaving in the best interests of shareholders and the resulting costs of monitoring managers’ actions. Lowers value of stock and bonds. How do financial distress and agency costs change the MM and Miller models? MM/Miller ignored these costs, hence those models show firm value increasing continuously with leverage. Since financial distress and agency costs increase with leverage, such costs reduce the value of debt financing. Here’s a valuation model which includes financial distress andagency costs: X represents either Tc in the MM model or the more complex Miller term. Now, optimal leverage involves a tradeoff between the tax benefits of debt and the costs associated with financial distress and agency. VL = VU + XD - - . PV of expected fin. distress costs PV of agency costs Cost of Capital (%) 14 4 Debt ($) Relationships between capital costs and leverage when financial distress and agency costs are considered. ks WACC kd(1 - T) D* Relationship between value and leverage. Value of Firm ($) Debt ($) 4 3 2 1 Note that value is maximized and WACC is minimized at the same capital structure. D* How are financial and business risk measured in a market risk framework? ksL = kRF + (kM - kRF)bU + (kM - kRF)bU(1 - T)(D/S) = + + . (Hamada’s equation) Pure time value Business risk premium Financial risk premium Hamada’s equation for beta: bL = + = + = + . bU Unlevered beta, which reflects the business risk of the firm Business risk bU(1 - T)(D/S) Increased volatility of the returnsto equitydue to the use of debt Financialrisk Results of a survey by Donaldson and the asymmetric information theory. Firms follow a specific financing order: First use internal funds. Next, draw on marketable securities. Then, issue new debt. Fina