《财务管理：理论与实践》（Brigham）的教学PPTCh 21 Show.ppt

For consistency, need kd kc ks. Why? Does the cost of the convertible appear to be consistent with the costs of debt and equity? (More...) kd = 12% and kc = 13.7%. ks = + g = + 0.08 = 16.0%. Since kc is between kd and ks, the costs are consistent with the risks. Check the values: D0(1 + g) P0 $1.48(1.08) $20 Assume the firm’s tax rate is 40% and its debt ratio is 50%. Now suppose the firm is considering either: (1) issuing convertibles, or (2) issuing bonds with warrants. Its new target capital structure will have 40% straight debt, 40% common equity and 20% convertibles or bonds with warrants. What effect will the two financing alternatives have on the firm’s WACC? WACC Effects Convertibles Step 1: Find the after-tax cost of the convertibles. 0 1 2 3 4 5 6 1,000 -63 -63 -63 -63 -63 -63 -1,269.50 -1,332.50 INT(1 - T) = $105(0.6) = $63. With a calculator, find: kc (AT) = IRR = 9.81%. kd (AT) = 12%(0.06) = 7.2%. Convertibles Step 2: Find the after-tax cost of straight debt. WACC (with = 0.4(7.2%) + 0.2(9.81%) convertibles) + 0.4(16%) = 11.24%. WACC (without = 0.5(7.2%) + 0.5(16%) convertibles) = 11.60%. Convertibles Step 3: Calculate the WACC. Some notes: We have assumed that ks is not affected by the addition of convertible debt. In practice, most convertibles are subordinated to the other debt, which muddies our assumption of kd = 12% when convertibles are used. When the convertible is converted, the debt ratio would decrease and the firm’s financial risk would decline. Warrants Step 1: Find the after-tax cost of the bond with warrants. 0 1 ... 4 5 6 ... 19 20 +1,000 -60 -60 -60 -60 -60 -60 -587.50 -1,000 -647.50 -1,060 INT(1 - T) = $100(0.60) = $60. # Warrants(Opportunity loss per warrant) = 50($11.75) = $587.50. Solve for: k