吉林大学：《金融学》专题教学资源（PPT课件讲稿）Capital structure and Dividend policy

Part 4 Capital structure and Dividend polic

Part 4 Capital structure and Dividend policy

Outline of this part If a firm seeks to create value with its financing decisions, the firm must find positive NPv financial arrangements. We will show that the sources of NPV in financing are taxes bankruptcy, and agency costs This part is composed by six chapters like Chapter 13 Corporate financing decisions and efficient capital markets Chapter 14 Long-term financing: an introduction Chapter 15 Capital structure: basic concepts Chapter 16 capital structure: limits to the use of debt Chapter 17 valuation and capital budgeting for the levered firm Chapter 18 Dividend policy: why does it matter?

Outline of this part If a firm seeks to create value with its financing decisions, the firm must find positive NPV financial arrangements. We will show that the sources of NPV in financing are taxes, bankruptcy, and agency costs. This part is composed by six chapters like : Chapter 13 Corporate financing decisions and efficient capital markets Chapter 14 Long—term financing: an introduction Chapter 15 Capital structure: basic concepts Chapter 16 Capital structure: limits to the use of debt Chapter 17 Valuation and capital budgeting for the levered firm Chapter 18 Dividend policy: why does it matter?

Part 4 Capital structure and D Lviaena policy Chapter 13 Corporate- financing decisions and ECM

Part 4 Capital structure and Dividend policy Chapter 13 Corporate—financing decisions and ECM

Chapter 13 Corporate financing decisions and ECM 5 In the past few parts, we have concentrated almost exclusively on the left-hand side of the balance sheet(the firms capital expenditure decisions), and now we move to the right-hand side and to the problems involved in financing the capital expenditures To put it crudely, you have learned hoe to spend money, now you must to learn how to raise it. Now we have not totally ignored financing in our discussion of capital budgeting. But we made the simplest possible assumption: all-equity financing

Chapter 13 Corporate— financing decisions and ECM • In the past few parts, we have concentrated almost exclusively on the left—hand side of the balance sheet(the firm’s capital expenditure decisions), and now we move to the right—hand side and to the problems involved in financing the capital expenditures. • To put it crudely, you have learned hoe to spend money, now you must to learn how to raise it. • Now we have not totally ignored financing in our discussion of capital budgeting. But we made the simplest possible assumption: all—equity financing

Chapter 13 Corporate financing decisions and ECM S What should we do for determine the best financing strategy Should the firm reinvest most of its earnings in the business, or should it pay them out as dividends? If the firm needs more capital, should it issue more stock or should it borrow? Should it borrow short-term or long-term Should it borrow by issuing a normal longterm bond or a convertible bond?

Chapter 13 Corporate— financing decisions and ECM • What should we do for determine the best financing strategy? – Should the firm reinvest most of its earnings in the business, or should it pay them out as dividends? – If the firm needs more capital, should it issue more stock or should it borrow? – Should it borrow short—term or long—term ? – Should it borrow by issuing a normal long—term bond or a convertible bond? ……………

Chapter 13 Corporate financing decisions and ECM S 13.1 Should financing decisions create value In the earlier parts of this book, we have learn how to evaluate project with NPV. Typical financing decisions include how much, what type and when for the debt and equity to sell Though the procedure for evaluating financing decisions is identical to the procedure for evaluating projects, the results are different. It turns out that the typical firm has many more capital-expenditure opportunities with positive NPv. Though this dearth of profitable financing opportunities will be examined in detail later. a few remarks are in order now

Chapter 13 Corporate— financing decisions and ECM 13.1 Should financing decisions create value? In the earlier parts of this book, we have learn how to evaluate project with NPV. Typical financing decisions include how much, what type and when for the debt and equity to sell. Though the procedure for evaluating financing decisions is identical to the procedure for evaluating projects, the results are different. It turns out that the typical firm has many more capital—expenditure opportunities with positive NPV. Though this dearth of profitable financing opportunities will be examined in detail later, a few remarks are in order now

Chapter 13 Corporate financing decisions and ECM S Fool investors Reduce costs or increase subsidies Create a new security

Chapter 13 Corporate— financing decisions and ECM – Fool investors – Reduce costs or increase subsidies – Create a new security

Chapter 13 Corporate financing decisions and ECM S Random walking theory As so often the case with important ideas, the concept of efficient capital markets stemmed from a chance discovery. In 1953, Maurice Kendall, a British statistician presented a controversial paper to the royal statistical Society on the behavior of stock and commodity price. He had expected to find regular price cycles, but to his and commodities seemed to follow a random walk tock to surprise they did not seem to exist. Each series appeared be a wandering one. In other words, the prices of The movement of stock prices from day to day do not reflect any pattern

Chapter 13 Corporate— financing decisions and ECM • Random walking theory As so often the case with important ideas, the concept of efficient capital markets stemmed from a chance discovery. In 1953, Maurice Kendall, a British statistician presented a controversial paper to the Royal Statistical Society on the behavior of stock and commodity price. He had expected to find regular price cycles, but to his surprise they did not seem to exist. Each series appeared to be a wandering one. In other words, the prices of stocks and commodities seemed to follow a random walk. – The movement of stock prices from day to day DO NOT reflect any pattern

Chapter 13 Corporate financing decisions and ECM S Coin Toss game head head 106.09 103 Tail l00.43 100 Tail head l00.43 97.5 Tail 95.06 In this game, if it comes up head, you win 3percent of your invest, if it tails you lose 2.5 percent of you investment

Chapter 13 Corporate— financing decisions and ECM Coin Toss Game In this game, if it comes up head, you win 3percent of your invest, if it tails you lose 2.5 percent of you investment. 100 Head Tail 103 97.5 head head Tail Tail 106.09 100.43 100.43 95.06

Chapter: 13 Corporatefinancing decisions andECM'nI 13.2 Capital market efficiency A question that has received particular attention is whether price adjust quickly and correctly when new information arrives. A market is said to be efficient if this is the case In an efficient capital market, current market prices fully reflect available information Efficient capital market is the market in which security price reflect available information Price behavior in an efficient market To illustrate how price behavior in an efficient market, suppose the X corporation has developed a new production. Xs capital budgeting analysis suggests that

Chapter 13 Corporate—financing decisions and ECM 13.2 Capital market efficiency A question that has received particular attention is whether price adjust quickly and correctly when new information arrives. A market is said to be “efficient” if this is the case. In an efficient capital market, current market prices fully reflect available information. Efficient capital market is the market in which security price reflect available information. – Price behavior in an efficient market To illustrate how price behavior in an efficient market, suppose the X corporation has developed a new production. X’s capital budgeting analysis suggests that