[财务管理]chapter 12 company valuation

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1、Chapter12TheWeighted-AverageCostofCapitalandCompanyValuationTopicsCoveredGeothermal’sCostofCapitalWeightedAverageCostofCapital(WACC)MeasuringCapitalStructureCalculatingRequiredRatesofReturnCalculatingWACCInterpretingWACCValuingEntireBusinesses2CostofCapitalCostofC

2、apital-Thereturnthefirm’sinvestorscouldexpecttoearniftheyinvestedinsecuritieswithcomparabledegreesofrisk.Thecostofcapitalistheweightedaverageofreturns(weightedbymarketvalue)ondebtandequity,whichisequaltotheexpectedrateofreturnontheportfolioofassets.Thecostofcapita

3、listhediscountrateforevaluatingnew,similarriskassetinvestments.3CostofCapitalThecostofcapitalforanall-equityfinancedfirm,suchasGeothermal,istherequiredreturnonthefirm’sassets.Owningallthestockisthesameasowningalltheassetsandtheexpectedreturnonthestockistheexpected

4、returnontheassets.Notethefollowingidentities:Valueofbusiness=valueofstockRiskofbusiness=riskofstockRateofreturnonbusiness=rateofreturnonstockInvestor’srequiredreturn=investor’srequiredreturnfrombusinessreturnfromstock4CostofCapitalCapitalStructure-Thefirm’smixoflo

5、ngtermfinancingandequityfinancing.5CostofCapitalExampleGeothermalInc.hasthefollowingstructure.Giventhatgeothermalpays8%fordebtand14%forequity,whatistheCompanyCostofCapital?6CostofCapitalExample-GeothermalInc.hasthefollowingstructure.Giventhatgeothermalpays8%fordeb

6、tand14%forequity,whatistheCompanyCostofCapital?7CostofCapitalExample-GeothermalInc.hasthefollowingstructure.Giventhatgeothermalpays8%fordebtand14%forequity,whatistheCompanyCostofCapital?8CostofCapitalExample-GeothermalInc.hasthefollowingstructure.Giventhatgeotherm

7、alpays8%fordebtand14%forequity,whatistheCompanyCostofCapital?Interestistaxdeductible.Givena35%taxrate,debtonlycostsus5.2%(i.e.8%x.65).9WACCWeightedAverageCostofCapital(WACC)-Theexpectedrateofreturnonaportfolioofallthefirm’ssecurities.Companycostofcapital=Weighteda

8、verageofdebtandequityreturns.10WACC11WACCTaxesareanimportantconsiderationinthecompanycostofcapitalbecauseinterestpaymentsaredeductedfromincomebeforetaxi