问个CFA I的题目 - 未名空间MITBBS历史存档

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问个CFA I的题目

问个CFA I的题目# Business - 商学院

m*m2008-11-25 08:11

1 楼

company A: 50% equity at average cost of 10% and 50% debt at average
after-tax cost of 3%, 40% effective tax rate
company B: all equity with average cost of 7%, tax rate 40%
both companies issue debt at par with coupon rate 7%, what will be the
effect on each company's marginal cost of capital?
A B
A) higher higher
B) H lower
C) L H
D) L L
我选D，答案B。
thanks.

m*92008-11-25 08:11

2 楼

B company's WACC will decrease for sure,
For A, when you calculate WACC, the after tax cost of debt is originally 3%,
and change to 4.2% now....so cost of debt increase, thus overall WACC incre
ase.
you can not judge buy saying that the new debt cost is lower than the origin
al WACC and WACC should be lower, actually the factor of cost of debt increa
se, so overall WACC should be higher after the par coupon debt issuance.

【在 m******m 的大作中提到】

: company A: 50% equity at average cost of 10% and 50% debt at average
: after-tax cost of 3%, 40% effective tax rate
: company B: all equity with average cost of 7%, tax rate 40%
: both companies issue debt at par with coupon rate 7%, what will be the
: effect on each company's marginal cost of capital?
: A B
: A) higher higher
: B) H lower
: C) L H
: D) L L

m*m2008-11-25 08:11

3 楼

Thanks but I still don't quite get it. Why the overall new WACC for A
company increases after the debt issuance? I understand that the new cost of
debt increases but no matter how I calculate it, I still get a lower new
WACC. Please share your calculation.

%,
incre
origin
increa

【在 m********9 的大作中提到】

: B company's WACC will decrease for sure,
: For A, when you calculate WACC, the after tax cost of debt is originally 3%,
: and change to 4.2% now....so cost of debt increase, thus overall WACC incre
: ase.
: you can not judge buy saying that the new debt cost is lower than the origin
: al WACC and WACC should be lower, actually the factor of cost of debt increa
: se, so overall WACC should be higher after the par coupon debt issuance.

m*92008-11-25 08:11

4 楼

the new WACC = 50%*10% +50%*7%*(1-40%) = 7.1%

of

【在 m******m 的大作中提到】

: Thanks but I still don't quite get it. Why the overall new WACC for A
: company increases after the debt issuance? I understand that the new cost of
: debt increases but no matter how I calculate it, I still get a lower new
: WACC. Please share your calculation.
:
: %,
: incre
: origin
: increa

m*m2008-11-25 08:11

5 楼

I guess using new 7% as debt cost directly in this problem is not
appropriate
assume orginial capital is C (C/2 is debt, C/2 is equity)
new debt is a
old WACC=50%*10%+50%*3%=6.5%
new WACC=0.5C/(C+a)*3%+a/(C+a)*7%*(1-40%)+0.5C/(C+a)*10% < 6.5%
The question is so confusing.

【在 m********9 的大作中提到】

: the new WACC = 50%*10% +50%*7%*(1-40%) = 7.1%
:
: of

m*92008-11-25 08:11

6 楼

还是你算得对，我也不明白为什么答案是higher

I guess using new 7% as debt cost directly in this problem is not
appropriate
assume orginial capital is C (C/2 is debt, C/2 is equity)
new debt is a
old WACC=50%*10%+50%*3%=6.5%
new WACC=0.5C/(C+a)*3%+a/(C+a)*7%*(1-40%)+0.5C/(C+a)*10% < 6.5%
The question is so confusing.

【在 m******m 的大作中提到】

: I guess using new 7% as debt cost directly in this problem is not
: appropriate
: assume orginial capital is C (C/2 is debt, C/2 is equity)
: new debt is a
: old WACC=50%*10%+50%*3%=6.5%
: new WACC=0.5C/(C+a)*3%+a/(C+a)*7%*(1-40%)+0.5C/(C+a)*10% < 6.5%
: The question is so confusing.

m*92008-11-25 08:11

7 楼

明白了，新issue的debt，所有的debt都按照新的debt cost来算。。。。
加油！！

【在 m******m 的大作中提到】

v*r2008-11-25 08:11

8 楼

at first try, i chose the same answer as you did. assumed "weighted average
of cost of capital", choose D
however, this question asks about "marginal cost"
marginal cost will always going higher because of the upsloping supply curve
of capital.... probably the amount of capital both companies raised is less
than face value. this means that the debt is kind of discount bonds
this is really a very confusing and tricky quesition... most of the
description of the qestion leads us to think aboiut wei

【在 m******m 的大作中提到】

m*m2008-11-25 08:11

9 楼

then how do you explain B company?
previous debt cost=0, after debt cost>0
marginal cost also higher with the same rule you used.

average
curve
less
cost

【在 v*****r 的大作中提到】

: at first try, i chose the same answer as you did. assumed "weighted average
: of cost of capital", choose D
: however, this question asks about "marginal cost"
: marginal cost will always going higher because of the upsloping supply curve
: of capital.... probably the amount of capital both companies raised is less
: than face value. this means that the debt is kind of discount bonds
: this is really a very confusing and tricky quesition... most of the
: description of the qestion leads us to think aboiut wei

v*r2008-11-25 08:11

10 楼

both company assume more credit risk by issuing the new debt
so marginal cost for both companies going higher

【在 m******m 的大作中提到】

: then how do you explain B company?
: previous debt cost=0, after debt cost>0
: marginal cost also higher with the same rule you used.
:
: average
: curve
: less
: cost

m*m2008-11-25 08:11

11 楼

then your answer is A, not B

【在 v*****r 的大作中提到】

: both company assume more credit risk by issuing the new debt
: so marginal cost for both companies going higher

v*r2008-11-25 08:11

12 楼

read the question description again, the new debt issued "at par".
for company B --- before the new debt, cost of capital = 7%, after tax cost
of new debt is 7%*(1-0.4) = 4.2%, so marginal cost of company B is lower
for company A --- before new debt, cost of capital = 0.5 * 0.1 + 0.5* 0.03
= 0.065
the new debt cost is 7% > 0.065, so marginal cost of capital is higher
so A Higher, B Lower
chose B

【在 m******m 的大作中提到】

v*r2008-11-25 08:11

13 楼

you are right, i confused myself. forget about capital supply curve. that's
for macro economic analysis, not for a specific study....
this question just test weighted average of cost of capital and marginal
cost ( compare cost of new capital with existing cost of capital)...

【在 m******m 的大作中提到】

: then your answer is A, not B

y*t2008-11-25 08:11

14 楼

"for company A --- before new debt, cost of capital = 0.5 * 0.1 + 0.5* 0.03
= 0.065
the new debt cost is 7% > 0.065, so marginal cost of capital is higher"
Here new debt cost does not need to multiply 1 - tax rate?

m*m2008-11-25 08:11

15 楼

co-ask

03

【在 y***t 的大作中提到】

: "for company A --- before new debt, cost of capital = 0.5 * 0.1 + 0.5* 0.03
: = 0.065
: the new debt cost is 7% > 0.065, so marginal cost of capital is higher"
: Here new debt cost does not need to multiply 1 - tax rate?

v*r2008-11-25 08:11

16 楼

sorry my mistake... both should be lower
read the question description again, the new debt issued "at par".
for company B --- before the new debt, cost of capital = 7%, after tax cost
of new debt is 7%*(1-0.4) = 4.2%, so effect on marginal cost of company B is
lower
for company A --- before new debt, cost of capital = 0.5 * 0.1 + 0.5* 0.03
= 0.065
after tax cost of the new debt cost is 7%*(1-0.4) = 4.2% > 3%
so the new debt going to make average after tax cost of debt higher
how ever, the weight

【在 m******m 的大作中提到】