NCTU Inc. consists of 20% debt and 80% equity. The perpetual unlevered cash flow is $13,200. The interest expense is deductible and the corporate tax rate is 34%. Assume that the expected return of the market portfolio is 14%, and the beta of the firm’s equity is 1.2. With so little debt, the firm is able to borrow at the risk-free rate of 8% per year, so NCTU plan to issue more debt and buy back its equity with the proceeds so that the new debt ratio will be 0.4. Assume all debts are perpetual and MM propositions hold.
(a) What is NCTU’s new cost of equity?
(b) How much more value of the firm has been created during the financial restructuring?
A stock has expected return of 0.08, beta of 0.2, and residual variance of 0. A junk bond has standard deviation of 0.3, beta of 1.2, and residual variance of 0.0324. In addition, the intercept in the market model for the stock is 0.05. Suppose that both stock and risky bond are perfectly positively correlated. A portfolio consists of the stock and the risky bond with equal amount. Given that the CAPM holds,
(a) what is the risk premium on the market?
(b) compute the expected rate of return on the portfolio.
(c) What is the standard deviation of rate of return on the portfolio?
Assume ChiaoTung Technologies is an unlevered firm, has a market value of $1 billion, and has a beta of 2. Given the expected rate of return on the market of 14 percent and the risk-free rate of 8 percent, its cost of capital is 20 percent. The firm is considering a risk-free project that costs $1 billion. Since the firm generates no taxable income, it finances the project by issuing additional equity. Assume that both existing projects and the new project have perpetual cash flows with expected values that do not change with the cash flow horizon. Given that the incremental cash flow from the new project to be $80 million. What is the new beta? What is the new cost of capital? What is the NPV of the project?
Perhaps the most prominent proxy contest involved Hewlett-Packard (HP) in 2002. The subject of the proxy vote was the proposed acquisition on Campaq by HP. Walter Hewlett, a corporate director and son of co-founder William Hewlett, was holding 18% of HP. He challenged this acquisition in a proxy fight. However, he lost the proxy vote against the merger after Deutsche Bank (DB) switched 17 million of the 25 million shares it controlled in favor of the $22 billion merger. (incidentally, these were not shares owned by DB but shares owned by DB clients and held in the DB asset management division.) DB decided to vote for the HP-Compaq merger only after it had become the co-arranger of a new multibillion-dollar line of credit. In August 2003, the government fined DB $750,000 for having failed to disclose another apparent conflict of interest. In a memo to the CEO of DB in the midst of the fight, HP head Carly Fiorina had suggested HP do something “extraordinary” for DB. In all, 838 million shares voted in favor of the deal, 793 million shares voted against it. It is little consolation for Walter Hewlett that he was proven right. The acquisition indeed turned out to be a failure. Carly Fiorina was fired by the board in 2005.
(1)
簡述上列個案中HP公司所出現的公司治理問題為何?CEO是否以股東利益為決策出發點?
(2)
為何美國政府嚴格處罰DB?DB的行為所顯示的代理問題為何?
(3)
DB當初應該如何決策才符合公司治理行為規範?
Literature on the traits of female leaders suggests that they deploy a leadership style characterized by trust rather than command and compliance style. This style is based more on cooperation than on competition, favored by men. Gender-diverse boards are likely to tilt towards such a leadership style but developing the trust and cooperation requires greater information exchange among directors and between directors and employees, which in turn is aided by more informed and extensive discussions of issues in board meetings. Literature also points to female directors being less overconfident than their male counterparts, which makes them more likely to institute higher standards of verification of managers’ reports to satisfy themselves. In a diverse corporate board, directors are more likely to: critically examine each others’ viewpoints because they bring different and sometimes conflicting perspectives; consider counter-arguments and resolve differences by discussion rather than by consensus; exhibit less overconfidence and are less likely to take extreme positions; contribute to firm’s conscience with regard to ethics and social responsibility; focus on how value is created; and display increased sensitivity to opportunities and threats to the firm from external environment. These arguments provide support for an association between gender diversity and informativeness of corporate earnings.
(1)
上面之述論述所提到的董事會多樣性的正面效果原因為何?請說明。
(2)
從董事人力市場供給與需求之角度,若政府強制要求達到董事會多樣性的要求,會出現哪些問題?
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