📖 公司金融复习

Corporate Finance

I. Lesson Focus

II. The Problem

A manufacturing firm must make several interconnected decisions: whether to invest in a new production line (capital budgeting), the optimal mix of debt and equity financing (capital structure), whether to increase the dividend payout ratio (dividend policy), how to design equity-based compensation to mitigate agency conflicts (corporate governance), and whether to pursue an acquisition to expand market share. Poor choices can destroy firm value, trigger financial distress, or harm shareholders. This lesson systematically reviews core corporate finance concepts so candidates can accurately compute NPV, WACC, and sustainable growth rates and correctly identify optimal capital structure and dividend policies on the exam.

III. Capital Budgeting Decision Framework

The central goal of capital budgeting is to determine whether a project will increase shareholder wealth. The primary tool is Net Present Value (NPV).

NPV formula:
$$ NPV = \sum_{t=1}^{n} \frac{CF_t}{(1+r)^t} - CF_0 $$
where $CF_t$ is the after-tax cash flow in period $t$, $r$ is the required return (typically WACC), and $CF_0$ is the initial outlay.

IRR is the discount rate that sets NPV to zero. Accept if IRR exceeds the hurdle rate. However, IRR suffers from multiple-IRR problems and unrealistic reinvestment assumptions. In mutually exclusive projects, IRR can conflict with NPV due to scale or timing differences.

Payback period is simple but ignores the time value of money and cash flows beyond the cutoff. Discounted payback improves on this but remains subjective.

Incremental cash flow rule: Only incremental cash flows caused by the project are relevant. These include: - Initial investment (equipment, installation, shipping, increase in net working capital) - Operating cash flow = (Sales – Costs – Depreciation) × (1 – tax rate) + Depreciation - Terminal cash flow (salvage value, recovery of NWC, tax effects)

IV. Cost of Capital and Weighted Average Cost of Capital (WACC)

WACC represents the firm’s overall financing cost and is used to discount free cash flows.

WACC formula:
$$ WACC = w_d \times r_d \times (1-t) + w_p \times r_p + w_e \times r_e $$
where $w_d$, $w_p$, and $w_e$ are the target weights of debt, preferred stock, and common equity; $r_d$, $r_p$, and $r_e$ are the respective costs; and $t$ is the marginal tax rate.

Cost of equity is commonly estimated with CAPM:
$$ r_e = r_f + \beta (r_m - r_f) $$
or the dividend discount model: $ r_e = \frac{D_1}{P_0} + g $.

Cost of debt is usually the yield to maturity (YTM). Weights must be based on the target capital structure using market values, not book values.

V. Capital Structure Theories and Optimal Decisions

MM Proposition I (no taxes): Capital structure does not affect firm value.
MM Proposition I (with taxes): Interest tax shields increase firm value:
$$ V_L = V_U + t \times D $$

Trade-off theory: Firms balance the benefit of interest tax shields against costs of financial distress; an optimal debt level exists.
Pecking-order theory: Firms prefer internal funds, then debt, and equity last.

Financial leverage amplifies ROE but also risk.
DuPont analysis:
$$ ROE = \frac{NI}{Equity} = PM \times AT \times EM $$
where $EM = \frac{Assets}{Equity}$ (equity multiplier) reflects leverage.

Sustainable growth rate:
$$ g = ROE \times (1 - \text{Dividend payout ratio}) $$
When actual growth exceeds sustainable growth, external financing is required.

VI. Dividend Policy and Share Repurchases

MM dividend irrelevance: In perfect markets, dividend policy does not affect firm value.
In reality, taxes, signaling, agency costs, and clientele effects matter. Common policies include stable dividends, residual dividends, and target payout ratios.

Share repurchases have similar economic effects to cash dividends but offer tax deferral (capital gains), stronger signaling, and greater flexibility because they do not create a “sticky” dividend expectation.

VII. Corporate Governance and Agency Problems

Primary agency conflicts exist between shareholders and managers, and between shareholders and creditors.
Mitigation tools include: - Equity incentives (stock options, restricted stock) - Independent boards - Debt covenants - Threat of hostile takeover (market for corporate control)

ESG considerations increasingly affect governance scores and cost of capital.

VIII. Mergers and Acquisitions

Motivations: Synergies (revenue enhancement, cost savings), diversification, tax shields, control premium, and market mispricing.

Types: Horizontal, vertical, conglomerate.
Valuation methods: Comparable company multiples, precedent transactions, and discounted cash flow (DCF).

Acquisition premiums typically range from 20%–30%. Hostile takeovers often use tender offers. Defensive measures include poison pills and white knights.

Worked Cases

Case 1: NPV and IRR Decision

A project requires an initial investment of CNY 8 million and is expected to generate after-tax operating cash flows of CNY 2.2 million per year for 5 years with zero salvage value. WACC = 10%. Compute NPV and IRR and decide acceptance.

Solution:
NPV = –8 + 2.2 × (PVIFA_{10%,5})
PVIFA_{10%,5} = 3.7908
NPV = –8 + 2.2 × 3.7908 = –8 + 8.3398 = 0.3398 million > 0 → accept.
IRR ≈ 12.4% (via calculator or trial-and-error) > 10%, consistent conclusion.

Case 2: WACC Calculation and Capital Structure Adjustment

Current capital structure: Debt CNY 40 million (pre-tax cost 6%, tax rate 25%), Equity CNY 60 million (β = 1.2, $r_f$ = 4%, market return = 11%). Target debt weight = 40%. Compute current and target WACC.

Solution:
Current $r_e$ = 4% + 1.2 × (11% – 4%) = 12.4%
Current WACC = (0.4) × 6% × (1–0.25) + (0.6) × 12.4% = 1.8% + 7.44% = 10.14%? Wait, weights are 40/100 = 0.4 debt.
Target WACC (assuming slight β adjustment to $r_e$ ≈ 13.0%): 0.4 × 6% × 0.75 + 0.6 × 13.0% = 1.8% + 7.8% = 9.6%.
Lower WACC increases firm value.

Case 3: Sustainable Growth Rate and Dividend Policy

ROE = 18%, current payout = 40%, actual sales growth target = 12%. Determine if external equity financing is needed.

Solution:
Retention ratio = 1 – 0.4 = 0.6
Sustainable growth = 18% × 0.6 = 10.8%
Actual growth 12% > 10.8% → external financing needed (EFN > 0). To avoid new equity, reduce payout to approximately 33.3% so sustainable g reaches 12%.

Traps

Key Formulas

• NPV = $\sum \frac{CF_t}{(1+r)^t} - CF_0$
• WACC = $w_d r_d(1-t) + w_e r_e$
• $r_e = r_f + \beta(r_m - r_f)$
• $V_L = V_U + tD$ (MM with taxes)
• Sustainable growth rate $g = ROE \times b$ ($b$ = retention ratio)
• Operating cash flow = $(S - C - D)(1-t) + D$
• ROE = Profit margin × Asset turnover × Equity multiplier
• EPS accretion test: repurchase accretive if post-buyback EPS rises

Practice Questions

Q1. Two mutually exclusive projects: Project A has NPV = CNY 1.2 million and IRR = 15%; Project B has NPV = CNY 1.5 million and IRR = 13%. WACC = 10%. Which should be chosen?
A. Project A
B. Project B
C. Both
D. Cannot determine

Q2. The most correct weights for WACC are based on:
A. Book values
B. Target capital structure at market values
C. Current market values only
D. Historical averages

Q3. According to MM with corporate taxes, firm value increases with debt:
A. Linearly downward
B. First rises then falls
C. Continuously upward
D. Remains unchanged

Q4. A firm has ROE = 15% and dividend payout = 40%. Its sustainable growth rate is:
A. 6%
B. 9%
C. 15%
D. 25%

Q5. Which of the following is NOT an incremental cash flow?
A. Sunk cost
B. Opportunity cost
C. Externality effect
D. Increase in net working capital

Q6. The main advantage of share repurchases over cash dividends is:
A. Immediate EPS increase
B. Tax deferral
C. Mandatory annual payment
D. Reduction in financial leverage

Q7. When using DCF to value a target in an acquisition, the appropriate discount rate is:
A. Acquirer’s WACC
B. Target’s standalone WACC
C. Target’s WACC adjusted for synergies and risk
D. Risk-free rate

Q8. Which statement best describes the relationship between agency costs and capital structure?
A. Higher debt reduces equity agency costs
B. Higher debt only increases costs of financial distress
C. Equity incentives completely eliminate agency conflicts
D. Independent directors are most effective against creditor–shareholder conflicts

Answers

Takeaways

• Capital budgeting decisions are driven primarily by NPV; IRR is supplementary
• WACC must use target market-value weights; equity cost is typically from CAPM
• Under MM with taxes, debt increases value, but trade-off theory identifies an optimal capital structure
• Sustainable growth rate = ROE × retention ratio; growth above this level requires external funds
• Dividend policy is shaped by signaling, taxes, and agency costs; repurchases offer greater flexibility
• Merger valuation centers on incremental free cash flows and an appropriate discount rate; synergies must be estimated conservatively