文档介绍：What types of capital do firms use?
Debt
Preferred stock
Common equity:
Retained earnings
New common stock
*
财务管理学及财务知识分析专业版
*
Stockholders focus on A-T CFs.
Therefore, we should focus on
A-T capital costs, ., use A-T costs in WACC. Only kd needs adjustment.
Should we focus on before-tax or after-tax capital costs?
*
财务管理学及财务知识分析专业版
*
The cost of capital is used primarily to make decisions that involve raising new capital. So, focus on today’s marginal costs (for WACC).
Should we focus on historical (embedded) costs or new (marginal) costs?
*
财务管理学及财务知识分析专业版
*
A 15-year, 12% semiannual bond sells for $1,. What’s kd?
60
60 + 1,000
60
0
1
2
30
i = ?
30 - 60 1000
% x 2 = kd = 10%
N
I/YR
PV
FV
PMT
-1,
...
INPUTS
OUTPUT
*
财务管理学及财务知识分析专业版
*
Component Cost of Debt
Interest is tax deductible, so
kd AT = kd BT(1 – T)
= 10%(1 – ) = 6%.
Use nominal rate.
Flotation costs small.
Ignore.
*
财务管理学及财务知识分析专业版
*
What’s the cost of preferred stock? Pp = $; 10%Q; Par = $100.
Use this formula:
*
财务管理学及财务知识分析专业版
*
Picture of Preferred Stock
0
1
2
kp = ?
-
¥
...
$ = = .
kPer = = %;
kp(Nom) = %(4) = 9%.
DQ
kPer
$
kPer
$
$
*
财务管理学及财务知识分析专业版
*
Note:
Preferred dividends are not tax deductible, so no tax adjustment. Just kp.
Nominal kp is used.
Our calculation ignores flotation costs.
*
财务管理学及财务知识分析专业版
*
Is preferred stock more or less risky to investors than debt?
More risky; company not required to pay preferred dividend.
However, firms try to pay preferred dividend. Otherwise, (1) cannot pay common dividend, (2) difficult to raise additional funds, (3) preferred stockholders may gain control of firm.
*
财务管理学及财务知识分析专业版
*
Why is yield on preferred lower than kd?
Corporations own most