【文章內(nèi)容簡介】 / $19)(.145) RWACC = or % b. Using the market value weights, the pany’s WACC is: RWACC = (wSTD)(RSTD)(1 – tC) + (wLTD)(RLTD)(1 – tC) + (wEquity)(REquity) RWACC = ($3 / $40)(.035)(1 – .35) + ($11 / $40)(.068)(1 – .35) + ($26 / $40)(.145) RWACC = or % c. Using the target debtequity ratio, the target debtvalue ratio for the pany is: B/S = B = Substituting this in the debtvalue ratio, we get: B/V = .6S / (.6S + S) B/V = .6 / B/V = .375 And the equityvalue ratio is one minus the debtvalue ratio, or: S/V = 1 – .375 S/V = .625 We can use the ratio of shortterm debt to longterm debt in a similar manner to find the shortterm debt to total debt and longterm debt to total debt. Using the shortterm debt to longterm debt ratio, we get: STD/LTD = STD = Substituting this in the shortterm debt to total debt ratio, we get: STD/B = .2LTD / (.2LTD + LTD) STD/B = .2 / STD/B = .167 And the longterm debt to total debt ratio is one minus the shortterm debt to total debt ratio, or: LTD/B = 1 – .167 LTD/B = .833 Now we can find the shortterm debt to value ratio and longterm debt to value ratio by multiplying the respective ratio by the debtvalue ratio. So: STD/V = (STD/B)(B/V) STD/V = .167(.375) STD/V = .063 And the longterm debt to value ratio is: LTD/V = (LTD/B)(B/V) LTD/V = .833(.375) LTD/V = .313 So, using the target capital structure weights, the pany’s WACC is: RWACC = (wSTD)(RSTD)(1 – tC) + (wLTD)(RLTD)(1 – tC) + (wEquity)(REquity) RWACC = (.06)(.035)(1 – .35) + (.31)(.068)(1 – .35) + (.625)(.145) RWACC = or % d. The differences in the WACCs are due to the different weighting schemes. The pany’s WACC will most closely resemble the WACC calculated using target weights since future projects will be financed at the target ratio. Therefore, the WACC puted with target weights should be used for project evaluation. Intermediate10. The adjusted present value of a project equals the net present value of the project under allequity financing plus the net present value of any financing side effects. In the joint venture’s case, the NPV of financing side effects equals the aftertax present value of cash flows resulting from the firms’ debt. So, the APV is: APV = NPV(AllEquity) + NPV(Financing Side Effects) The NPV for an allequity firm is: NPV(AllEquity) NPV = –Initial Investment + PV[(1 – tC)(EBITD)] + PV(Depreciation Tax Shield) Since the initial investment will be fully depreciated over five years using the straightline method, annual depreciation expense is: Annual depreciation = $30,000,000/5 Annual depreciation = $6,000,000 NPV = –$30,000,000 + (1 – )($3,800,000)%,20 + ()($6,000,000)PVIFA5,13%,20 NPV = –$5,262, NPV(Financing Side Effects) The NPV of financing side effects equals the aftertax present value of cash flows resulting from the firm’s debt. The coupon rate on the debt is relevant to determine the interest payments, but the resulting cash flows should still be discounted at the pretax cost of debt. So, the NPV of the financing effects is: NPV = Proceeds – Aftertax PV(Interest Payments) – PV(Principal Repayments) NPV = $18,000,000 – (1 – )()($18,000,000)%,15 – $18,000,000/ NPV = $7,847, So, the APV of the project is: APV = NPV(AllEquity) + NPV(Financing Side Effects) APV = –$5,262, + $7,847, APV = $2,584,11. If the pany had to issue debt under the terms it would normally receive, the interest rate on the debt would increase to the pany’s normal cost of debt. The NPV of an allequity project would remain unchanged, but the NPV of the financing side effects would change. The NPV of the financing side effects would be: NPV = Proceeds – Aftertax PV(Interest Payments) – PV(Principal Repayments) NPV = $18,000,000 – (1 – )()($18,000,000)%,15 – $18,000,000/(()15 NPV = $4,446, Using the NPV of an allequity project from the previous problem, the new APV of the project would be: APV = NPV(AllEquity) + NPV(Financing Side Effects) APV = –$5,262, + $4,446, APV = –$815, The gain to the pany from issuing subsidized debt is the difference between the two APVs, so: Gain from subsidized debt = $2,584, – (–815,) Gain from subsidized debt = $3,400, Most of the value of the project is in the form of the subsidized interest rate on the debt issue.12. The adjusted present value of a project equals the net present value of the project under allequity financing plus the net present value of any financing side effects. First, we need to calculate the unlevered cost of equity. According to ModiglianiMiller Proposition II with corporate taxes: RS = R0 + (B/S)(R0 – RB)(1 – tC) .16 = R0 + ()(R0 – )(1 – ) R0 = or % Now we can find the NPV of an allequity project, which is: NPV = PV(Unlevered Cash Flows) NPV = –$21,000,000 + $6,900,000/ + $11,000,000/()2 + $9,500,000/()3 NPV = –$212, Next, we need to find the net present value of financing side effects. This is equal the aftertax present value of cash flows resulting from the firm’s debt. So: NPV = Proceeds – Aftertax PV(Interest Payments) – PV(Principal Payments) Each year, an equal principal payment will be made, which will reduce the interest accrued during the year. Given a known level of debt, debt cash flows should be discounted at the pretax cost of debt, so the NPV of the financing effects are: NPV = $7,000,000 – (1 – .40)(.09)($7,000,000) / () – $2,333,() – (1 – .40)(.09)($4,666,)/()2 – $2,333,()2 – (1 – .40)(.09)($2,333,)/()3 – $2,333,()3 NPV = $437, So, the APV of project is: APV = NPV(Allequity) + NPV(Financing side effects)