Corporate Finance 第7版 答案Ch017.docx

1、Corporate Finance 第7版 答案Ch017Chapter 17: Valuation and Capital Budgeting for the Levered Firm17.1 a. The maximum price that Hertz should be willing to pay for the fleet of cars with all-equity funding is the price that makes the NPV of the transaction equal to zero. NPV = -Purchase Price + PV(1- TC

2、)(Earnings Before Taxes and Depreciation) + PV(Depreciation Tax Shield)Let P equal the purchase price of the fleet. NPV = -P + (1-0.34)($100,000)A50.10 + (0.34)(P/5)A50.10Set the NPV equal to zero.0 = -P + (1-0.34)($100,000)A50.10 + (0.34)(P/5)A50.10P = $250,191.93 + (P)(0.34/5)A50.10P = $250,191.93

3、 + 0.2578P0.7422P = $250,191.93P = $337,095Therefore, the most that Hertz should be willing to pay for the fleet of cars with all-equity funding is $337,095.b. The adjusted present value (APV) of a project equals the net present value of the project if it were funded completely by equity plus the ne

4、t present value of any financing side effects. In Hertzs case, the NPV of financing side effects equals the after-tax present value of the cash flows resulting from the firms debt. APV = NPV(All-Equity) + NPV(Financing Side Effects) NPV(All-Equity)NPV = -Purchase Price + PV(1- TC )(Earnings Before T

5、axes and Depreciation) + PV(Depreciation Tax Shield)Hertz paid $325,000 for the fleet of cars. Because this fleet will be fully depreciated over five years using the straight-line method, annual depreciation expense equals $65,000 (= $325,000/5).NPV = -$325,000 + (1-0.34)($100,000)A50.10 + (0.34)($6

6、5,000)A50.10 = $8,968NPV(Financing Side Effects)The net present value of financing side effects equals the after-tax present value of cash flows resulting from the firms debt.NPV(Financing Side Effects) = Proceeds After-Tax PV(Interest Payments) PV(Principal Payments)Given a known level of debt, deb

7、t cash flows should be discounted at the pre-tax cost of debt (rB), 8%.NPV(Financing Side Effects) = $200,000 (1 0.34)(0.08)($200,000)A50.08 $200,000/(1.08)5 = $21,720 APV APV = NPV(All-Equity) + NPV(Financing Side Effects) = $8,968 + $21,720 = $30,688 Therefore, if Hertz uses $200,000 of five-year,

8、 8% debt to fund the $325,000 purchase, the Adjusted Present Value (APV) of the project is $30,688.17.2 The adjusted present value of a project equals the net present value of the project under all-equity financing plus the net present value of any financing side effects. In Geminis case, the NPV of

9、 financing side effects equals the after-tax present value of the cash flows resulting from the firms debt. APV = NPV(All-Equity) + NPV(Financing Side Effects) NPV(All-Equity)NPV = -Initial Investment + PV(1-TC)(Earnings Before Taxes and Depreciation) + PV(Depreciation Tax Shield)Since the initial i

10、nvestment of $2.1 million will be fully depreciated over three years using the straight-line method, annual depreciation expense equals $700,000 (= $2,100,000 / 3).NPV = -$2,100,000 + (1-0.30)($900,000)A30.18 + (0.30)($700,000)A30.18 = -$273,611NPV(Financing Side Effects)The net present value of fin

11、ancing side effects equals the after-tax present value of cash flows resulting from the firms debt.NPV(Financing Side Effects) = Proceeds, net of flotation costs After-Tax PV(Interest Payments) PV(Principal Payments) + PV(Flotation Cost Tax Shield)Given a known level of debt, debt cash flows should

12、be discounted at the pre-tax cost of debt (rB), 12.5%. Since $21,000 in flotation costs will be amortized over the three-year life of the loan, $7,000 = ($21,000 / 3) of flotation costs will be expensed per year. NPV(Financing Side Effects) = ($2,100,000 - $21,000) (1 0.30)(0.125)($2,100,000)A30.125

13、 $2,100,000/(1.125)3 + (0.30)($7,000)A30.125 = $171,532APV APV = NPV(All-Equity) + NPV(Financing Side Effects) = -$273,611 + $171,532 = -$102,079 Since the adjusted present value (APV) of the project is negative, Gemini should not undertake the project.17.3 The adjusted present value of a project eq

14、uals the net present value of the project under all-equity financing plus the net present value of any financing side effects. According to Modigliani-Miller Proposition II with corporate taxes: rS = r0 + (B/S)(r0 rB)(1 TC) where r0 = the required return on the equity of an unlevered firm rS = the r

15、equired return on the equity of a levered firm rB = the pre-tax cost of debt TC = the corporate tax rate B/S = the firms debt-to-equity ratio In this problem: rS = 0.18 rB = 0.10 TC = 0.40 B/S = 0.25 Solve for MVPs unlevered cost of capital (r0): rS = r0 + (B/S)(r0 rb)(1 TC) 0.18 = r0 + (0.25)(r0 0.

16、10)(1 0.40) r0 = 0.17 The cost of MVPs unlevered equity is 17%. APV = NPV(All-Equity) + NPV(Financing Side Effects) NPV(All-Equity)NPV = PV(Unlevered Cash Flows) = -$15,000,000 + $4,000,000/1.17 + $8,000,000/(1.17)2 + $9,000,000/(1.17)3 = -$117,753NPV(Financing Side Effects)The net present value of

17、financing side effects equals the after-tax present value of cash flows resulting from the firms debt.NPV(Financing Side Effects) = Proceeds After-Tax PV(Interest Payments) PV(Principal Payments)Given a known level of debt, debt cash flows should be discounted at the pre-tax cost of debt (rB), 10%.N

18、PV(Financing Side Effects) = $6,000,000 (1 0.40)(0.10)($6,000,000) / (1.10) $2,000,000/(1.10) (1 0.40)(0.10)($4,000,000)/(1.10)2 $2,000,000/(1.10)2 (1 0.40)(0.10)($2,000,000)/(1.10)3 $2,000,000/(1.10)3 = $410,518 APV APV = NPV(All-Equity) + NPV(Financing Side Effects) = -$117,753 + $410,518 = $292,7

19、65 Since the adjusted present value (APV) of the project is positive, MVP should proceed with the expansion.17.4 The adjusted present value of a project equals the net present value of the project under all-equity financing plus the net present value of any financing side effects. In the joint ventu

20、res case, the NPV of financing side effects equals the after-tax present value of cash flows resulting from the firms debt. APV = NPV(All-Equity) + NPV(Financing Side Effects) NPV(All-Equity)NPV = -Initial Investment + PV(1 TC)(Earnings Before Interest, Taxes, and Depreciation ) + PV(Depreciation Ta

21、x Shield)Since the initial investment of $20 million will be fully depreciated over five years using the straight-line method, annual depreciation expense equals $4,000,000 (= $20,000,000/5).NPV = -$20,000,000 + (1-0.25)($3,000,000)A200.12 + (0.25)($4,000,000)A50.12 = $411,024NPV(Financing Side Effe

22、cts) The NPV of financing side effects equals the after-tax present value of cash flows resulting from the firms debt.Given a known level of debt, debt cash flows should be discounted at the pre-tax cost of debt (rB), 10%. NPV(Financing Side Effects) = Proceeds After-tax PV(Interest Payments) PV(Pri

23、ncipal Repayments) = $10,000,000 (1 0.25)(0.05)($10,000,000)A150.09 $10,000,000/(1.09)15 = $4,231,861APV APV = NPV(All-Equity) + NPV(Financing Side Effects) = $411,024 + $4,231,861 = $4,642,885 The Adjusted Present Value (APV) of the project is $4,642,885.17.5 a. In order to value a firms equity usi

24、ng the Flow-to-Equity approach, discount the cash flows available to equity holders at the cost of the firms levered equity (rS). Since this cash flow will remain the same forever, the present value of cash flows available to the firms equity holders is a perpetuity of $493,830, discounted at 21%. P

25、V(Flows-to-Equity) = $493,830 / 0.21 = $2,351,571 The value of Milano Pizza Clubs equity is $2,351,571.b. The value of a firm is equal to the sum of the market values of its debt and equity. VL = B + S The market value of Milano Pizza Clubs equity (S) is $2,351,571 (see part a).The problem states th

26、at the firm has a debt-to-equity ratio of 30%, which can be written algebraically as:B / S = 0.30Since S = $2,351,571:B / $2,351,571 = 0.30B = $705,471The market value of Milano Pizza Clubs debt is $705,471, and the value of the firm is $3,057,042 (= $705,471 + $2,351,571).The value of Milano Pizza

27、Club is $3,057,042.17.6 a. In order to determine the cost of the firms debt (rB), solve for the discount rate that makes the present value of the bonds future cash flows equal to the bonds current price. Since WWIs one-year, $1,000 par value bonds carry a 7% coupon, bond holders will receive a payme

28、nt of $1,070 =$1,000 + (0.07)($1,000) in one year. $972.73 = $1,070/ (1+ rB) rB = 0.10 Therefore, the cost of WWIs debt is 10%. b. Use the Capital Asset Pricing Model to find the return on WWIs unlevered equity (r0). According to the Capital Asset Pricing Model: r0 = rf + Unlevered(rm rf) where r0 =

29、 the cost of a firms unlevered equity rf = the risk-free rate rm = the expected return on the market portfolio Unlevered = the firms beta under all-equity financing In this problem: rf = 0.08 rm = 0.16 Unlevered = 0.9 r0 = rf + Unlevered(rm rf) = 0.08 + 0.9(0.16-0.08) = 0.152 The cost of WWIs unleve

30、red equity is 15.2%. Next, find the cost of WWIs levered equity. According to Modigliani-Miller Proposition II with corporate taxes rS = r0 + (B/S)(r0 rB)(1 TC) where r0 = the cost of a firms unlevered equity rS = the cost of a firms levered equity rB = the pre-tax cost of debt TC = the corporate tax rate B/S = the firms target debt-to-equity ratio In this problem: r0 = 0.152 rB = 0.10 TC = 0.34 B/S = 0.50 The cost of WWIs levered equity is: rS = r0 + (B/S)(r0 rB)(1 TC) = 0.152 + (0.50)(0.152-0.10)(1 0.34) = 0.1692 The cost of WWIs levered equity is