Week 1 Capital Structure版本

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1、CapitalStructureCapitalStructureCapitalStructureCapitalStructureHowtaxaffectsfinancialchoicesHowtaxaffectsfinancialchoicesMMcontMMcont……�Considertwo“versions”ofthesamefirm–oneversionisUforunlevered(withnodebt)andtheotherversionLforlevered(withdebt)�Thefirmshaveotherwis

2、ethesameoperatingcashflowX�TheunleveredfirmhasvalueVandtheUleveredfirmvalueVLMMcontMMcont……�ThefundamentalquestioniswhetherVUandVLdiffer�ThecashflowsoffirmU’sequityholdersissimplyX�ThecashflowoffirmL’sdebtholdersis(1+r)Dtothefirm’sdebtholdersandX-(1+r)Dtothefirm’sequit

3、yholders,intotalacashflowofXalso�ThevalueofListhecombinedvalueofthedebtandtheequityMMcontMMcont……�SupposeVLissmallerthanVU�Thenaninvestorcanbuya10%holdingofL’sdebtanda10%holdingofL’sequity,whichentitlestheinvestortoa10%shareinthetotalcashflowX.Hewouldthengotothemarketa

4、ndsell10%ofthecashflowX,whichisvaluedat10%ofthevalueofU.Thisleaveshimwithzerofutureliability.�Histradinggainsare10%ofthedifferencebetweenVUandVL,whichwehaveassumedispositive�Thiscannotbepossibleinanarbitragefreemarket,sowecanconcludethatVLmustbeequaltoorgreaterthanVUAs

5、sumptionofMMAssumptionofMM�TheKeyAssumption–thatthesumofallfuturecashflowsdistributedtothefirm’sdebtandequityinvestorisunaffectedbycapitalstructure�Notransactioncosts�NoarbitrageMMTheoremMMTheorem�Thetotalmarketvalueofthefirm,whichisthesameasthesumofthemarketvaluesofth

6、eitemsontheright-handsideofthebalancesheet(thatis,itsdebtandequity),isnotaffectedbyhowitisfinanced�Thisillustrateshowshareholderscanundotheeffectofachangeinafirm’scapitalstructurebymakingoffsettingchangestotheirownportfolio.�Theshareholdercanachievethesamecashflowpatte

7、rnandcontinuetocontrolthesamepercentofthefirm’sshares.�Withouttransactioncosts,theshareholderisindifferenttochangesinthefirm’scapitalstructure.HowRiskyDebtAffectstheHowRiskyDebtAffectstheMMTheoremMMTheorem�TheassumptionsoftheMMTheorempermitbankruptcy,butnobankruptcycos

8、ts.�Ifafirmfailstomeetdebtobligations,theownershipmovecostlesslyfromtheequityholderstothedebtholders.�Onceagain,Stanl