公司财务精要课程会让你深入理解有关公司，投资者以及他们在资本市场的相互影响的核心金融问题。本课程结束时，你应该能够读懂大部分金融出版物并可以使用基本的企业和财务专业金融词汇。(邹广隶 译)

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来自 IESE Business School 的课程

公司财务精要

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公司财务精要课程会让你深入理解有关公司，投资者以及他们在资本市场的相互影响的核心金融问题。本课程结束时，你应该能够读懂大部分金融出版物并可以使用基本的企业和财务专业金融词汇。(邹广隶 译)

从本节课中

Estimating the Cost of Capital - An Application

In this session we will put to work all the concepts discussed in the previous session by estimating the cost of capital of a company. As usual, when putting theory into practice, a few complications arise and we will discuss how to deal with them.

- Javier EstradaProfessor of Financial Management

Department of Financial Management

[MUSIC]

Hi, and welcome to session four of this corporate finance essentials course and

this is, as we said before, this is a continuation of session three.

Remember, sessions, one and two run into each other, sessions three and

four run into each other, we've spent some time in session three.

Thinking about the meaning of the Cost of Capital,

the intuition behind the different terms of the Cost of Capital.

And now we're going to get hands on and we're going to apply.

We're going to look at specific company, the specific point in time and

we're going to estimate that company's cost of capital.

And as we'll be making this much more clear in just a few minutes,

the company will Starbucks.

And the point in time will be the third quarter of 2013.

And we're going to be looking at what the company had in terms of

sources of financing.

And how to calculate, and the actual number for

the cost of capital of Starbucks at that particular point in time.

All right?

Now, before we get into that, it's important that we

spend a few minutes doing a quick review of what we've done so far.

First off, we have three ways of thinking about this

weighted average cost of capital, or WAC, or cost of capital for, for short.

the, the three ways that we discuss are one from the point of view of investors.

One from the point of view of the company,

these two being two sides of the same coin.

And one that is actually probably the best and

most intuitive way of thinking about the cost of capital.

All three of which, are perfectly correct.

So whichever is most intuitive to you.

That is the one that you can use.

But from the point of view of investors, remember, investors provide capital.

That capital is used for companies in order to invest,

in order to create the, products and services that we like to buy.

And investors require a return on that capital so the average of

those required returns is basically one way of thinking about the cost of capital.

As we said in session three.

Remember, whenever we talk about averages in finance,

we typically think about weighted average.

That means that we're only thinking in terms of the sources of financing,

but we're also thinking in terms of how much we're using or

we're providing of each source of financing.

So the weighed average of those required returns, or simply the average of

those required returns, is what we call the cost of capital.

If we flip the coin and

we think of the company as having to raise capital, having to deliver,

deliver returns on those different sources of capitals being raised.

And then basically what we have is that because each source is capital,

it has a cost and that cost is something that the company has to deliver.

The average of those costs, or the weighted average of those costs,

is what we call again the the cost of capital.

So, at the end of the day,

we can think of the cost of capital as the average required return for

investors, or as the average cost that the company has to deliver to those investors.

Those two things are exactly the same.

The third and

critical way of thinking about the cost of capital remember, is a hurdle rate.

And we call it a hurdle rate because that is the minimum required return on

everything that the company does.

And all the investment projects in which the company is engaged.

And remember why it is the minimum required return.

Because if through different sources of finances,

financing, I have to deliver a 5% return,

I will not want to invest in anything from which I expect less than 5% return.

If I invest in anything from which I expect less, then the cost of raising

the capital to invest in this particular investment opportunity, I'm basically

burning money, and companies that do that, sooner or later go out of business.

So, if my cost of raising funds is 5% I will want to

invest in anything that gives me at least more than 5%.

And in that sense the weighted average cost of

capital becomes the minimum required return.

On the company's investments.

We also talked about,

that remember, the company may be financed in many different ways.

There are companies that are very simple, fully financed by equity.

Companies that are somewhat more complicated,

which are financed by their own equity.

And, companies that are even more complicated that are financed through

multiple sources of financing.

All that doesn't really matter,

because we all, all we need to know for each source of financing is,

what is the required return and how much we're using in proportional terms.

Once we know those two things,

we can put everything together into that weighted average cost of capital.

So we said that we would think in terms of a company raising debt and equity,

because it's a very typical situation, not because every company does it.

As we said before, in session three, some companies are fully financed by equity.

Technology companies, sometimes, are these type of companies that are mostly or

fully financed by equity.

That're very large sophisticated companies that use on top of debt and

equity they may use convertible data and

preferred equity and many other sources of financing.

So what we're still going to be thinking in terms of debt and equity and

the cost of debt and the cost of equity.

And remember the few things that we said before in

session three about the cost of debt.

First we said that the cost of debt was both observable and objective.

What do we mean by that?

Well, observable means that there's somewhere that I

can actually look at that particular cost of debt.

It may be the yield to maturity on a bond that is trading on a market.

It may be the rate that a bank quotes when I ask them the amount of money that I

need to borrow from them.

But either one way or the other, then I'm observing that particular number.

And because I'm observing that number, it becomes subjective.

I may like it or not like it, but if you and I are looking at that.

A specific cost of debt with both of us, we'll be seeing the same number.

So, from that point of view,

remember, the cost of debt is observable and the cost of debt is objective.

When we consider the amount of debt, and

we'll discuss this by the we discuss this by the end of session three.

We said that typically we can see their long term debt and typically that is

interest bearing debt so we're not really focusing on short term debt.

The type of debt the company usually runs uses to run,

the company on a day-to-day basis.

We're focusing on the long-term, on the investment activities of the company and

therefore we're focusing on interest-bearing long-term debt.

And the third and important thing that we said about the cost of debt was that

if we have a bond trading in the market, and that bond has an interest rate, and

a yield to maturity, we use as the cost of debt the yield to maturity and

not the interest rate.

And remember, the reason for

this, throughout the life of the bond that interest rate is not going to change,

but during the life of the bond the yield to maturity will be changing all the time.

And it will be changing all the time because it depends on the market price.

And that market price is investors' willingness to pay for that bond.

And that willingness to pay is going to be changing when the riskiness of

the company, or the riskiness of the sector in which the company does business,

or the risk, riskiness of the economy changes over time.

And it is important that we want to capture at this particular point in

time everything that we know about the company, the sector, and the economy.

We want to put all that together into how much return we

should require to buy the debt of this company.

And remember, again, because this yield to maturity changes with

market conditions and company conditions, and industry conditions.

And the interest rate of the bond does not change,

then we use the yield to maturity, and not the interest rate.

That's a very important concept.

In many cases, there may be a big difference between the two.

If you were to look, for

example, at Greek bonds today, Greek bonds that were issued some time ago.

Well, those coupon may be very low, but those yield to maturities are huge.

Which means that you know, people have adjusted.

They do not consider these interest payments enough, and so

they're willing to pay a lot less for them.

And because they're willing to pay little,

the required return on that debt goes up a lot.

So we actually want to use the yield to maturity for

that reason rather than the, the interest rate.

In fact the,

the Greek example is a perfect example because if Greece had bonds That we're

issued a five ten years ago well those bonds were issued a time of tranquility.

Those coupons will reflect that at that point in

time people were perceiving relatively low risk from the point of

Greece say your bond that was issued ten years ago.

But now things have changed dramatically.

Maybe they no, surely the interest rate on those bonds is not changed but

the yield to maturity has gone up dramatically.

Well, that's the number that we want to use as the Greek company,

average company, cost of debt.

All right?

So bottom line the cost of debt observable, objective we need yield to

maturities not interest rate and we typically think in term of

long term interest bearing debt as oppose to short term non interest bearing debt.

Then we talked about the cost of equity and that cost of equity unlike the cost of

debt remember is not observable and because it's not observable we

need to estimate it and because we need to estimate it becomes subjective.

Why subjective?

Because the model that you use and I use or the inputs for

the model that you use and the inputs for the model that I use may be different.

And so your estimate and my estimate may be a different and that

means that neither we have an observable number, nor we have an objective number.

Now in terms of models there are many but there is one that is far more widely used

than others and that is what we for the capital assessment pricing module or for

short the CAPM as we show you one slide.

in, in session three, this is by far the most widely used model which doesn't mean

that it's free from controversy.

Some people don't like the model.

Some people say the model doesn't really work, but

at the end of the day, it's a very popular model.

It's a very intuitive model, and it gives you an estimate of the cost of debt or

the required return on debt.

Now what is important about the CAPM and, and what, what you need to keep in

mind is that although the intuition is very neat, the intuition is very clear.

And it seems that it's very simple that you need to throw only

three numbers into the right hand side of the expression in order to get the cost of

debt on the left hand side.

The problem with that is that now, everything seems to be very arguable.

What is a risk for rate, how we estimate the market risk premium, how we

estimate the beta, there are differences opi, different opinions about that.

And, and it's very difficult to argue that this person is right and

the other persons are wrong.

If you'll remember from session three, we actually looked for

the Risk-Free rate, the market risk premium and beta.

We looked at different possibilities.

And, and the use of those different possibilities.

So we said, well, you know, there are many possibilities for

the Risk-Free rate but the ten-year yield seems to be a popular option.

There are many possibilities for

the market risk premium, particularly in the case of the US,

we've seen that numerical possibilities with 5 to 6% being the most popular one.

And, finally, in terms of beta.

How many years we go back in order to estimate whether a company is

mitigating or magnifying markets fluctuations,

five years seems to be a popular number but by no means the only number.

So when you put all this together, what we arrive to is basically the idea that

the CAPM is intuitive, it's easy to understand.

It seems to be easy to apply, but it's not.

What we have to do is to look at the consensus.

What are the most widely used practicing terms of the CAPM?

And we may beg to disagree.

We may think that the situation of the company we need to deal with deserves or

needs a different treatment and we may go for that.

But it's important that unlike the cost of

debt in which everything seems to be more or less undisputable.

Just about everything that has to be,

has to do with the cost of equity is much more arguable.

And, and that is the way I will discuss it.

And that is the way that reality goes, unfortunately.

It would be very easy for me to stand before you here and say.

look, this is what you have to do in order to calculate very quickly the cost of

equity with the CAPM, but

that's not unfortunately where reality is going to show you.

And final thing, we talked about the cost.

We reviewed the cost of debt.

We reviewed the cost of equity.

The final thing are the proportions of debt and equity.

Remember we call it the weighted averaged cost of capital.

Although sometimes we call it the cost of capital for short.

But it's always a weighted average because we do need to take into account

how much we're using of each of these two, or any number of sources of financing.

And remember something that it's important when we get to the numbers a few minutes

from now, we're going to be dealing with a company that uses a lot of equity and

very little debt.

So we just cannot calculate the straightforward average between

whatever we calculate as a cost of debt and

whatever we calculate at the cost of equity.

That would give us a really wrong idea of what is this company's cost of capital,

particularly when a company uses, as we're going to see, over 98% equity and 2% debt.

We just cannot assume that this is just equal proportions of debt and equity.

So we need to take into account proportion of each source of financing and,

very important, we do that at market value, not at book value.

We went over the reasons for that before, but remember, the,

the reason is market values adjust to everything that we

know about the company at this particular point in time and

they properly reflect the current, not the historical, conditions of the company.

So we talked about the cost of debt.

We talked about the cost of equity.

We talked about the proportions of debt and equity.

And final thing, we also talked about the corporate tax rate.

And that is relevant simply because, remember if that you have the debt on your

capital structure and therefore you pay interest, then you get a tax break.

Whereas if you actually don't have a debt on your capital structure and

not by interest, but by dividends, those dividends don't get a tax break.

That asymmetry in just every country's tax code implies that interest payments

are made before taxes and therefore, when you pay those,

that, that interest, you reduce your profits and

you pay less taxes, and that's what we call a tax shield.

That is, if we compare as we did in session three, two identical companies

with the only difference that one has debt and the other doesn't have debt.

There was a difference in the taxes that they pay, and that tax

difference implies that you get a break of taxes in terms of paying interest and so

that's why there's a pre-tax cost of debt and after-tax cost of debt.

And we need to calculate those, and we're going to do that in one minute.

So, one final thing before we get to the company, the moment in time, and

the actual calculations, and that is the, the notation.

And just typically as we said before this is a,

a, sort of typical notation of the cost of capital.

And I'm very adamant of putting that R as we discussed in Session 3 before the WACC.

Just to remind you that at the end of the day, this is a required return, and

that required return is going to depend on the risk perceived by people that

provide capital to the company.

So we have on the left hand side the weighted average cost of capital.

On the right hand side as we said before and

again this all review we have the R's the RD and the RE.

This are the required return on debt and the required return on

equity sometimes called the cost of debt and the cost of equity.

Then we have the, the excess which are the proportions xd and xe proportions of

debt and proportion of equity how much we're using in relative of these two.

And remember if we assume that a company is fully financed by debt and equity.

Then the proportion of debt and the proportion of equities must add to one.

And we're going to use that little result a little bit later on and

finally we call t c the corporate tax rate.

So if we multiply one minus t c by R d,

the cost of debt, that gave us, if you remember, the after tax cost of debt.

[MUSIC]