文档介绍：CHAPTER 13:LEVERAGE.(The use of debt)
CHAPTER 13:
LEVERAGE.
(The use of debt)
Copyright ? 2007 Thomson/South-Western, Geltner/Miller/Clayton/Eichholtz, 2e
The analogy of physical leverage & financial leverage
“Give me a place to stand, and I will move the earth.”
- Archimedes (287-212 BC)
500
lbs
200
lbs
A Physical Lever...
;Leverage Ratio; = 500/200 =
LIFTS
5 feet
2 feet
Copyright ? 2007 Thomson/South-Western, Geltner/Miller/Clayton/Eichholtz, 2e
Financial Leverage
$4,000,000
EQUITY
INVESTMENT
BUYS
$10,000,000
PROPERTY
;Leverage Ratio; = $10,000,000 / $4,000,000 =
Equity = $4,000,000
Debt = $6,000,000
Copyright ? 2007 Thomson/South-Western, Geltner/Miller/Clayton/Eichholtz, 2e
Terminology
“Leverage”“Debt Value”, “Loan Value”(L) (or “D”). “Equity Value”(E) “Underlying Asset Value”(V = E+L): ;Leverage Ratio“= LR = V / E = V / (V-L) = 1/(1-L/V) (Not the same as the “Loan/Value Ratio”: L / V,or “LTV”.)
“Risk” The RISK that matters to investors is the risk in their total return, related to the standard deviation (or range or spread) in that return.
Copyright ? 2007 Thomson/South-Western, Geltner/Miller/Clayton/Eichholtz, 2e
Copyright ? 2007 Thomson/South-Western, Geltner/Miller/Clayton/Eichholtz, 2e
Copyright ? 2007 Thomson/South-Western, Geltner/Miller/Clayton/Eichholtz, 2e
Effect of Leverage on Risk & Return
(Numerical Example)
Example Property & Scenario Characteristics:
Current (t=0) values (known for certain): E0[CF1] = $800,000 V0 = $10,000,000
Possible Future es are risky (next year, t=1): ;Pessimistic; scenario (1/2 chance): CF1 = $700,000; V1 = $9,200,000. ;Optimistic; scenario (1/2 chance): CF1 = $900,000; V1 = $11,200,000.
$
$
+
$
+
50%
50%
Property:
Loan:
$
$
+
100%
Copyright ? 2007 Thomson/South-Western, Geltner/Miller/Clayton/Eichholtz, 2e
Case I: All-Equity (No Debt: Leverage Ratio=1, L/V=0)
Item Pessimistic Optimistic
Inc. Ret. (y):
Ex An