Unidade teórica 8. Estrutura financeira da empresa e o endividamento Unidade teórica 8 . Estrutura financeira da empresa e o endividamento. . O valor da empresa Inclui notas de curso do Prof. W. J. Hunter Carlos Arriaga Costa 2005/06 Carlos Arriaga CostaUMinho Ec Financeira

Questões desta unidade . O que é o custo do capital de um projecto/empresa? . Porque é que a avaliação do risco de crédito se importa com o custo do capital de um projecto/empresa? . Em que medida a estrutura do capital influencia as decisões financeiras da empresa? . Quais as principais teorias sobre a estrutura de capital óptima? Carlos Arriaga CostaUMinho Ec Financeira

Escolha da estrutura de capital Qual é o primeiro objectivo financeiro? - Maximizar a riqueza dos accionistas. Por isso, pretende-se escolher a estrutura d ecapital que maximize a riqueza dos accionistas. Pode-se maximizar a riqueza dos accionistas por maximizar o valor da empresa ou minimizar o WACC Remind students that the WACC is the appropriate discount rate for the risk of the firm’s assets. We can find the value of the firm by discounting the firm’s expected future cash flows at the discount rate – the process is the same as finding the value of anything else. Since value and discount rate move in opposite directions, firm value will be maximized when WACC is minimized. Carlos Arriaga CostaUMinho Ec Financeira

Custo do capital definição : taxa de desconto adaptada ao risco do projecto/empresa Componentes: - Custo da acção (dos capitais próprios) - Custo do endividamento WACC – weighted average cost of capital – taxa de desconto apropriada para proceder à avaliação dos cash-flows futuros do projecto/empresa Carlos Arriaga CostaUMinho Ec Financeira

Métodos de avaliação DCF - Discount cash flows Modelo do dividendo antecipado de Gordon Capital Asset pricing Model (CAPM) Carlos Arriaga CostaUMinho Ec Financeira

Modelo de Gordon P0 = (D1 / 1+re ) + D1*(1+g) / (1+re)2 + D1*(1+g)2 / (1+re)3+…+ = Σ D1* (1+g)t-1 / (1+re)t = D1 /(re – g) com |g| < re Carlos Arriaga CostaUMinho Ec Financeira

Modelo de Gordon-4 D5*(1+g2) / (1+re)6 + D5*(1+g2)2 / (1+re)7+…+ = Σt=6 até ∞ D5* (1+g2)t-5 / (1+re)t = 1/(1+re)5 Σt=1 até ∞ D5* (1+g2)t / (1+re)t 1/(1+re)5 D5* (1+g2)t / (re-g2 ) Carlos Arriaga CostaUMinho Ec Financeira

Modelo de Gordon-5 Po = D1 / (re-g) re = (D1 / P0 )+g re = (D0 (1+g) /P0) + g Carlos Arriaga CostaUMinho Ec Financeira

Outro método de avaliação do custo do capital - CAPM Modelo de aplicação na avaliação de uma acção Covariância entre o custo de capital (retorno do valor da acção) e o retorno do mercado (medido pelo índice de mercado) Β (empresa) = Cov (retorno mercado, retorno empresa) / Var (retorno mercado) Carlos Arriaga CostaUMinho Ec Financeira

CUSTO DO CAPITAL WACC= ( E/(E+D) )*re + (D /(E+D))*rd(1-tc) Carlos Arriaga CostaUMinho Ec Financeira

Estrutura do capital Em que medida as alterações na estrutura do capital poderão afectar a empresa? Reestruturação do capital envolve uma alteração da quantidade de “leverage” de uma empresa sem modificar os activos da empresa. Aumento do “leverage” por se envolver em endividamento e readquirir as acções distribuídas da empresa. Diminuição do “leverage” por emissão de novas acções e retirar endividamento à empresa. Carlos Arriaga CostaUMinho Ec Financeira

Efeito do Leverage Em que medida o “ leverage” pode afectar o “EPS” e o “ROE” de uma empresa? Quando aumentamos a quantidade de dívida aumentamos a despesa em juros fixos e isso vai-se reflectir tanto num bom ano económico como num mau ano. “Leverage” amplifica a variação do EPS e do ROE Remind the students that if we increase the amount of debt in a restructuring, we are decreasing the amount of outstanding shares. Carlos Arriaga CostaUMinho Ec Financeira

Exemplo: Leverage Financeiro, EPS e ROE Ignoramos o efeito dos impostos neste momento. O que acontece ao EPS e ROE se criarmos dívida e re-adquirirmos as acções? Click on the Excel icon to go to a spreadsheet that contains all of the information for the example presented in the book. Carlos Arriaga CostaUMinho Ec Financeira

Exemplo: Leverage Financeiro, EPS e ROE Variação do ROE Corrente: ROE varia entre 6.25% e 18.75% Objectivo: ROE variar de 2.50% a 27.50% Variação do EPS Corrente: EPS varia entre $1.25 e $3.75 Objectivo: EPS vaiar entre $0.50 e $5.50 A variação do ROE e EPS aumenta quando o leverage financeiro é aumentado Carlos Arriaga CostaUMinho Ec Financeira

Break-Even EBIT Encontrar o valor do EBIT quando o EPS for o mesmo em ambas as estruturas de capital, corrente e proposta. Se esperarmos que o EBIT seja maior que o valor do break-even point, então o efeito de “leverage” é benéfico aos accionistas. Se esperarmos que o EBIT é menor que o valor do break-even point, então o efeito de “leverage” é prejudicial aos accionistas. Carlos Arriaga CostaUMinho Ec Financeira

Exemplo: Break-Even EBIT Click on the Excel icon to see the graph of the break-even analysis Carlos Arriaga CostaUMinho Ec Financeira

Exemplo: Leverage e ROE Estrutura capital corrente Investidor pede emprestado $2000 e utiliza $2000 dos seus fundos para comprar 200 accçoes Payoffs: Em Recessão: 200(1.25) - .1(2000) = $50 Esperado: 200(2.50) - .1(2000) = $300 Expansão: 200(3.75) - .1(2000) = $550 Idêntico aos payoffs em adquirir 100 acções na estrutura de capital proposta. Estrutura de capital proposta: Investidor compra $1000 em acções (50 acçoes) e $1000 em obrigações que paga 10%. Payoffs: Recessão: 50(.50) + .1(1000) = $125 Esperado: 50(3.00) + .1(1000) = $250 Expansão: 50(5.50) + .1(1000) = $375 Idêntico aos payoffs em adquirir 100 acções na estrutura de capital corrente. The choice of capital structure is irrelevant if the investor can duplicate the cash flows on their own. Note that all of the positions require an investment of $2000. We are still ignoring taxes and transaction costs. If we factor in these market imperfections, then homemade leverage will not work quite as easily, but the general idea is the same. Carlos Arriaga CostaUMinho Ec Financeira

Teoria da estrutura do Capital Teoria de Modigliani and Miller sobre a Estrutura do Capital Proposição I – Valor da empresa Proposição II – WACC O valor da empresa é determinado pelos cash flows da empresa e o risco dos seus activos. Mudar o valor da empresa, significa: - Mudar o risco dos cash flows Mudar os cash flows Carlos Arriaga CostaUMinho Ec Financeira

Teoria da estrutura do Capital em três casos especiais Caso I – Pressupostos Não existem impostos Não há custos de falência (bankruptcy) Caso II – Pressupostos Existem impostos sobre aempresa mas não impostos sobre o indivíduo. - Não há custos de falência (bankruptcy) Caso III – Pressupostos Existem impostos sobre a empresa mas não impostos sobre o indivíduo. - Há custos de falência (bankruptcy) Carlos Arriaga CostaUMinho Ec Financeira

Caso I – Proposições I e II Proposição I O valor da empresa não se encontra afectado pelas alterações da estrutura de capital. Os cash flows da empresa não se modificam. Proposição II O WACC da empresa não se encontra afectado pela estrutura de capital. The main point with case I is that it doesn’t matter how we divide our cash flows between our stockholders and bondholders, the cash flow of the firm doesn’t change. Since the cash flows don’t change; and we haven’t changed the risk of existing cash flows, the value of the firm won’t change. Carlos Arriaga CostaUMinho Ec Financeira

Caso I - Equações WACC = RA = (E/V)RE + (D/V)RD RE = RA + (RA – RD)(D/E) RA é o “custo” do risco da empresa, i.e., o risco dos activos da empresa. (RA – RD)(D/E) é o “custo” do risco financeiro, i.e., o retorno adicional requerido pelos accionistas para compensar o risco de “leverage”. Remind students that case I is a world without taxes. That is why the term (1 – TC) is not included in the WACC equation. Carlos Arriaga CostaUMinho Ec Financeira

Caso I - Exemplo Dados Qual é o custo de capital ( cost of equity)? Retornos pretendidos sobre os activos = 16%, custo do endividamento = 10%; percentagem de dívida = 45% Qual é o custo de capital ( cost of equity)? RE = .16 + (.16 - .10)(.45/.55) = .2091 = 20.91% Suponha que o “ cost of equity” é de 25%, qual é o “debt-to-equity” ratio? .25 = .16 + (.16 - .10)(D/E) D/E = (.25 - .16) / (.16 - .10) = 1.5 Com esta informação, qual é a percentagem de “equity” na empresa? E/V = 1 / 2.5 = 40% Remind students that if the firm is financed with 45% debt, then it is financed with 55% equity. At this point, you may need to remind them that one way to compute the D/E ratio is %debt / (1-%debt) The second question is used to reinforce that RA does not change when the capital structure changes Many students will not immediately see how to get the % of equity from the D/E ratio. Remind them that D+E = V. We are looking at ratios, so the actual $ amount of D and E is not important. All that matters is the relationship between them. So, let E = 1. Then D/1 = 1.5; Solve for D; D = 1.5. Then V = 1 + 1.5 = 2.5 and the percent equity is 1 / 2.5 = 40%. They often don’t understand that the choice of E = 1 is for simplicity. If they are confused about the process, then show them that it doesn’t matter what you set E equal to, as long as you keep the relationships in tact. So, let E = 5; then D/5 = 1.5 and D = 5(1.5) = 7.5; V = 5 + 7.5 = 12.5 and E/V = 5 / 12.5 = 40%. Carlos Arriaga CostaUMinho Ec Financeira

Figura 1 Carlos Arriaga CostaUMinho Ec Financeira

O CAPM, a SML e a Proposição II Em que medida é que o “leverage” financeiro afecta o risco sistemático? CAPM: RA = Rf + A(RM – Rf) onde A é o beta dos activos da empresa e mede o risco sistemático dos activos da empresa. Proposition II Substituir o RA com o CAPM e assumir que a dívida (debt) é à taxa sem risco (RD = Rf) RE = Rf + A(1+D/E)(RM – Rf) Intuitively, an increase in financial leverage should increase systematic risk since changes in interest rates are a systematic risk factor and will have more impact the higher the financial leverage. The assumption that debt is riskless is for simplicity and to illustrate that even if debt is default risk-free, it still increases the variability of cash flows to the stockholders and thus the systematic risk. Carlos Arriaga CostaUMinho Ec Financeira

Risco do negócio e risco financeiro RE = Rf + A(1+D/E)(RM – Rf) CAPM: RE = Rf + E(RM – Rf) E = A(1 + D/E) Therefore, the systematic risk of the stock depends on: Systematic risk of the assets, A, (Business risk) Level of leverage, D/E, (Financial risk) Point out once again that this result assumes that the debt is risk-free. The effect of leverage on financial risk will be even greater if the debt is not default free. Carlos Arriaga CostaUMinho Ec Financeira

Case II – Cash Flows Interest is tax deductible Therefore, when a firm adds debt, it reduces taxes, all else equal The reduction in taxes increases the cash flow of the firm How should an increase in cash flows affect the value of the firm? Point out that the government effectively pays part of our interest expense for us; it is subsidizing a portion of the interest payment. Carlos Arriaga CostaUMinho Ec Financeira

Case II - Example Unlevered Firm Levered Firm EBIT 5000 Interest 500 500 Taxable Income 4500 Taxes (34%) 1700 1530 Net Income 3300 2970 CFFA 3470 The levered firm has 6250 in 8% debt, so the interest expense = .08(6250) = 500 CFFA = EBIT – taxes (depreciation expense is the same in either case, so it will not affect CFFA on an incremental basis) Carlos Arriaga CostaUMinho Ec Financeira

Interest Tax Shield Annual interest tax shield Tax rate times interest payment 6250 in 8% debt = 500 in interest expense Annual tax shield = .34(500) = 170 Present value of annual interest tax shield Assume perpetual debt for simplicity PV = 170 / .08 = 2125 PV = D(RD)(TC) / RD = DTC = 6250(.34) = 2125 Point out that the increase in cash flow in the example is exactly equal to the interest tax shield The assumption of perpetual debt makes the equations easier to work with, but it is useful to ask the students what would happen if we did not assume perpetual debt. Carlos Arriaga CostaUMinho Ec Financeira

Case II – Proposition I The value of the firm increases by the present value of the annual interest tax shield Value of a levered firm = value of an unlevered firm + PV of interest tax shield Value of equity = Value of the firm – Value of debt Assuming perpetual cash flows VU = EBIT(1-T) / RU VL = VU + DTC RU is the cost of capital for an unlevered firm = RA for an unlevered firm VU is jus the PV of the expected future cash flow from assets for an unlevered firm. Carlos Arriaga CostaUMinho Ec Financeira

Example: Case II – Proposition I Data EBIT = 25 million; Tax rate = 35%; Debt = $75 million; Cost of debt = 9%; Unlevered cost of capital = 12% VU = 25(1-.35) / .12 = $135.42 million VL = 135.42 + 75(.35) = $161.67 million E = 161.67 – 75 = $86.67 million Carlos Arriaga CostaUMinho Ec Financeira

Figure 13.4 Carlos Arriaga CostaUMinho Ec Financeira

Case II – Proposition II The WACC decreases as D/E increases because of the government subsidy on interest payments RA = (E/V)RE + (D/V)(RD)(1-TC) RE = RU + (RU – RD)(D/E)(1-TC) Example RE = .12 + (.12-.09)(75/86.67)(1-.35) = 13.69% RA = (86.67/161.67)(.1369) + (75/161.67)(.09)(1-.35) RA = 10.05% Carlos Arriaga CostaUMinho Ec Financeira

Example: Case II – Proposition II Suppose that the firm changes its capital structure so that the debt-to-equity ratio becomes 1. What will happen to the cost of equity under the new capital structure? RE = .12 + (.12 - .09)(1)(1-.35) = 13.95% What will happen to the weighted average cost of capital? RA = .5(.1395) + .5(.09)(1-.35) = 9.9% Remind students that a D/E ratio = 1 implies 50% equity and 50% debt. The amount of leverage in the firm increased, the cost of equity increased, but the overall cost of capital decreased. Carlos Arriaga CostaUMinho Ec Financeira

Illustration of Proposition II Carlos Arriaga CostaUMinho Ec Financeira

Case III Now we add bankruptcy costs As the D/E ratio increases, the probability of bankruptcy increases This increased probability will increase the expected bankruptcy costs At some point, the additional value of the interest tax shield will be offset by the expected bankruptcy cost At this point, the value of the firm will start to decrease and the WACC will start to increase as more debt is added Carlos Arriaga CostaUMinho Ec Financeira

Bankruptcy Costs Direct costs Financial distress Legal and administrative costs Ultimately cause bondholders to incur additional losses Disincentive to debt financing Financial distress Significant problems in meeting debt obligations Most firms that experience financial distress do not ultimately file for bankruptcy Carlos Arriaga CostaUMinho Ec Financeira

More Bankruptcy Costs Indirect bankruptcy costs Larger than direct costs, but more difficult to measure and estimate Stockholders wish to avoid a formal bankruptcy filing Bondholders want to keep existing assets intact so they can at least receive that money Assets lose value as management spends time worrying about avoiding bankruptcy instead of running the business Also have lost sales, interrupted operations and loss of valuable employees Carlos Arriaga CostaUMinho Ec Financeira

Figure 13.5 Carlos Arriaga CostaUMinho Ec Financeira

Conclusions Case I – no taxes or bankruptcy costs No optimal capital structure Case II – corporate taxes but no bankruptcy costs Optimal capital structure is 100% debt Each additional dollar of debt increases the cash flow of the firm Case III – corporate taxes and bankruptcy costs Optimal capital structure is part debt and part equity Occurs where the benefit from an additional dollar of debt is just offset by the increase in expected bankruptcy costs Carlos Arriaga CostaUMinho Ec Financeira

Figure 13.6 Carlos Arriaga CostaUMinho Ec Financeira

Additional Managerial Recommendations The tax benefit is only important if the firm has a large tax liability Risk of financial distress The greater the risk of financial distress, the less debt will be optimal for the firm The cost of financial distress varies across firms and industries and as a manager you need to understand the cost for your industry Carlos Arriaga CostaUMinho Ec Financeira

Observed Capital Structure Capital structure does differ by industries Differences according to Cost of Capital 2000 Yearbook by Ibbotson Associates, Inc. Lowest levels of debt Drugs with 2.75% debt Computers with 6.91% debt Highest levels of debt Steel with 55.84% debt Department stores with 50.53% debt See Table 13.5 in the book for more detail Carlos Arriaga CostaUMinho Ec Financeira

Work the Web Example You can find information about a company’s capital structure relative to its industry, sector and the S&P 500 at Yahoo Marketguide Click on the web surfer to go to the site Choose a company and get a quote Choose ratio comparisons Carlos Arriaga CostaUMinho Ec Financeira

Bankruptcy Process – Part I Business failure – business has terminated with a loss to creditors Legal bankruptcy – petition federal court for bankruptcy Technical insolvency – firm is unable to meet debt obligations Accounting insolvency – book value of equity is negative Carlos Arriaga CostaUMinho Ec Financeira

Bankruptcy Process – Part II Liquidation Chapter 7 of the Federal Bankruptcy Reform Act of 1978 Trustee takes over assets, sells them and distributes the proceeds according to the absolute priority rule Reorganization Chapter 11 of the Federal Bankruptcy Reform Act of 1978 Restructure the corporation with a provision to repay creditors Carlos Arriaga CostaUMinho Ec Financeira

Quick Quiz Explain the effect of leverage on EPS and ROE What is the break-even EBIT? How do we determine the optimal capital structure? What is the optimal capital structure in the three cases that were discussed in this chapter? What is the difference between liquidation and reorganization? Carlos Arriaga CostaUMinho Ec Financeira