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1、(本科）会计专业英语教案Chapter 14教学目标知识目标：Explain what capital cost is. Understand the leverage theory.能力目标: Describe the factors that influence a companys capital structure decision. Understand the dividend payment method. 素质目标：Define the content of dividend theory.教学重点Describe the factors that influence a co
2、mpanys capital structure decision.教学难点Describe the factors that influence a companys capital structure decision.教学手段结合理论与案例小组讨论教学学时4课时教 学 内 容 与 教 学 过 程 设 计注 释Chapter 14 Capital Structure and Dividend Policy理论知识Topic 1: Capital Cost1. DefinitionThe cost of funds used for financing a business. Cost of
3、 capital depends on the mode of financing usedit refers to the cost of equity if the business is financed solely through equity, or to the cost of debt if it is financed solely through debt. Many companies use a combination of debt and equity to finance their businesses, and for such companies, thei
4、r overall cost of capital is derived from a weighted average of all capital sources, widely known as the weighted average cost of capital (WACC). Since the cost of capital represents a hurdle rate that a company must overcome before it can generate value, it is extensively used in the capital budget
5、ing process to determine whether the company should proceed with a project.2. Cost of Capital FormulaThe cost of capital is the blended cost of debt and equity that a company has acquired in order to fund its operations. It is important, because a companys investment decisions related to new operati
6、ons should always result in a return that exceeds its cost of capital . If not, then the company is not generating a return for its investors.(1)How to Calculate the Cost of CapitalThe cost of capital is comprised of the costs of debt, preferred stock, and common stock. The formula for the cost of c
7、apital is comprised of separate calculations for all three of these items, which must then be combined to derive the total cost of capital on a weighted average basis. The formula for the cost of debt is as follows:(Interest Expense (1 Tax Rate)(Amount of Debt Debt Acquisition Fees + Premium on Debt
8、 Discount on Debt)The cost of preferred stock is a simpler calculation, since interest payments made on this form of funding are not tax-deductible. The formula is as follows: Interest Expense Amount of Preferred StockA beta value of less than one indicates a level of rate-of-return risk that is low
9、er than average, while a beta greater than one would indicate an increasing degree of risk in the rate of return. Given these components, the formula for the cost of common stock is as follows:Risk-Free Return + (Beta(Average Stock Return Risk-Free Return)Once all of these calculations have been mad
10、e, they must be combined on a weighted average basis to derive the blended cost of capital for a company. We do this by multiplying the cost of each item by the amount of outstanding funding associated with it, as noted in the following table:Total Debt FundingPercentage Cost=Dollar Cost of DebtTota
11、l Preferred Stock FundingPercentage Cost=Dollar Cost of Preferred StockTotal Common FundingPercentage Cost=Dollar Cost of Common Stock=Total Cost of Capital Topic 2: Leverage Theory1. Definition Financial leverage can be defined as the degree to which a company uses fixed-income securities, such as
12、debt and preferred equity. With a high degree of financial leverage come high interest payments. As a result, the bottom-line earnings per share are negatively affected by interest payments. As interest payments increase as a result of increased financial leverage, EPS is driven lower.(2) Leverage R
13、atios for Evaluating Solvency and Capital StructureThe most well-known financial leverage ratio is the debt-to-equity ratio. It is expressed as:Total debt / Total EquityThe financial leverage ratio is sometimes referred to as the equity multiplier. For example, a company has assets valued at $2 bill
14、ion and stockholder equity of $1 billion. The equity multiplier value would be 2.0 ($2 billion / $1 billion), meaning that one half of a companys assets are financed by equity. The balance must be financed by debt.Topic 3: Capital Structure Decision1. DefinitionThe capital structure is how a firm fi
15、nances its overall operations and growth by using different sources of funds. Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings. Short-term debt such as working capital requirements is also considered to
16、 be part of the capital structure.2. Debt and EquityDebt is one of the two main ways companies can raise capital in the capital markets. Companies like to issue debt because of the tax advantages. Interest payments are tax-deductible. Debt also allows a company or business to retain ownership, unlik
17、e equity. Additionally, in times of low interest rates, debt is abundant and easy to access.Equity is more expensive than debt, especially when interest rates are low. However, unlike debt, equity does not need to be paid back if earnings decline. On the other hand, equity represents a claim on the
18、future earnings of the company as a part owner.3. Factors That Influence a Companys Capital-Structure DecisionThe primary factors that influence a companys capital-structure decision are as follows:(1)Business Risk Excluding debt, business risk is the basic risk of the companys operations. The great
19、er the business risk, the lower the optimal debt ratio. (2) Companys Tax Exposure Debt payments are tax deductible. As such, if a companys tax rate is high, using debt as a means of financing a project is attractive because the tax deductibility of the debt payments protects some income from taxes.(
20、3) Financial FlexibilityFinancial flexibility is essentially the firms ability to raise capital in bad times. It should come as no surprise that companies typically have no problem raising capital when sales are growing and earnings are strong.(4) Management StyleManagement styles range from aggress
21、ive to conservative. The more conservative a managements approach is, the less inclined it is to use debt to increase profits.(5)Growth RateFirms that are in the growth stage of their cycle typically finance that growth through debt by borrowing money to grow faster. The conflict that arises with th
22、is method is that the revenues of growth firms are typically unstable and unproven. As such, a high debt load is usually not appropriate.(6) Market ConditionsMarket conditions can have a significant impact on a companys capital-structure condition. Suppose a firm needs to borrow funds for a new plan
23、t. If the market is struggling, meaning that investors are limiting companies access to capital because of market concerns, the interest rate to borrow may be higher than a company would want to pay. In that situation, it may be prudent for a company to wait until market conditions return to a more
24、normal state before the company tries to access funds for the plant.Topic 4: Dividend Payment Method1.DefinitionFirst, some financial analysts feel that the consideration of a dividend policy is irrelevant because investors have the ability to create homemade dividends. The second argument claims th
25、at little to no dividend payout is more favorable for investors. In opposition to these two arguments is the idea that a high dividend payout is important for investors because dividends provide certainty about the companys financial well-being. Dividend payouts follow a set procedure as follows:(1)
26、 Declaration DateDeclaration date is the announcement that the companys board of directors approved the payment of the dividend.(2) Ex-Dividend DateThe ex-dividend date is the date on which investors are cut off from receiving a dividend. If for example, an investor purchases a stock on the ex-divid
27、end date, that investor will not receive the dividend. This date is two business days before the holder-of-record date.(3) Holder-of-Record DateThe holder-of-record (owner-of-record) date is the date on which the stockholders who are to receive the dividend are recognized.(4) Payment DateLast is the
28、 payment date, the date on which the actual dividend is paid out to the stockholders of record.2.Dividend Payment MethodNow, should the company decide to follow either the high or low dividend method, it would use one of three main approaches: residual, stability or a hybrid compromise between the t
29、wo.(1) ResidualCompanies using the residual dividend policy choose to rely on internally generated equity to finance any new projects. As a result, dividend payments can come out of the residual or leftover equity only after all project capital requirements are met. These companies usually attempt t
30、o maintain balance in their debt/equity ratios before making any dividend distributions, which demonstrates that they decide on dividends only if there is enough money left over after all operating and expansion expenses are met.(2) StabilityThe fluctuation of dividends created by the residual polic
31、y significantly contrasts with the certainty of the dividend stability policy. With the stability policy, companies may choose a cyclical policy that sets dividends at a fixed fraction of quarterly earnings, or it may choose a stable policy whereby quarterly dividends are set at a fraction of yearly
32、 earnings. In either case, the dividend stability policys aim is to reduce uncertainty for investors and to provide them with income.(3) HybridThe final approach combines the residual and stable dividend policies. Using this approach, companies tend to view the debt/equity ratio as a long-term rathe
33、r than a short-term goal. In todays markets, this approach is commonly used by companies that pay dividends. As these companies generally experience business cycle fluctuations, they will generally have one set dividend, which is established as a relatively small portion of yearly income and can be
34、easily maintained. On top of this set dividend, these companies will offer another extra dividend paid only when income exceeds general levels.Topic 5: The Dividend Theory1. Dividend Irrelevance Theory Much like their work on the capital-structure irrelevance proposition, Modigliani and Miller also
35、theorized that, with no taxes or bankruptcy costs, dividend policy is also irrelevant. This is known as the dividend-irrelevance theory, indicating that there is no effect from dividends on a companys capital structure or stock price. MMs dividend-irrelevance theory says that investors can affect th
36、eir return on a stock regardless of the stocks dividend. For example, suppose, from an investors perspective, that a companys dividend is too big. That investor could then buy more stock with the dividend that is over the investors expectations. Likewise, if, from an investors perspective, a company
37、s dividend is too small, an investor could sell some of the companys stock to replicate the cash flow he or she expected. As such, the dividend is irrelevant to investors, meaning investors care little about a companys dividend policy since they can simulate their own.2. Bird-in-the-Hand Theory Bird
38、 in hand is a theory that postulates investors prefer dividends from a stock to potential capital gains because of the inherent uncertainty of the latter. Based on the adage a bird in the hand is worth two in the bush, the bird-in-hand theory states investors prefer the certainty of dividend payment
39、s to the possibility of substantially higher future capital gains. The theory was developed by Myron Gordon and John Lintner as a counterpoint to the Modigliani-Miller dividend irrelevance theory, which maintains that investors are indifferent to whether their returns from holding a stock arise from
40、 dividends or capital gains. Under the bird-in-hand theory, stocks with high dividend payouts are sought by investors and consequently command a higher market price.3. Tax-Preference Theory Taxes are important considerations for investors. Remember capital gains are taxed at a lower rate than divide
41、nds. As such, investors may prefer capital gains to dividends. This is known as the tax Preference theory. Additionally, capital gains are not paid until an investment is actually sold. Investors can control when capital gains are realized, but, they cant control dividend payments, over which the re
42、lated company has control. 小结1.cost of capital formula:(Interest Expense (1 Tax Rate)(Amount of Debt Debt Acquisition Fees + Premium on Debt Discount on Debt)2.The most well-known financial leverage ratio is the debt-to-equity ratio. It is expressed as:Total debt / Total Equity. 3.Six factors that influence a companys capital-structure decision. 4.Three dividend payment methods. 5.different dividend theories.感谢您的支持与使用如果内容侵权请联系删除仅供教学交流使用