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1
Lobe, Sebastian. "Caveat WACC: Pitfalls in the use of the weighted average cost of capital." Corporate Ownership and Control 6, no. 3 (2009): 45–52. http://dx.doi.org/10.22495/cocv6i3p4.
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In Discounted Cash Flow valuations, the WACC approach is very popular. Therefore, knowing which limitations the concept inherits is essential. The objective of this paper is thus twofold: First, it is clarified that a constant WACC rate must fail if the implied leverage ratio is time-varying. This seems to be the rationale for defining a nonlinear WACC (NLWACC). However, the NLWACC appears to be rather artificial when allowing for time-varying WACCs. Second, although the NLWACC approach is further amplified in this paper, it must be emphasized that this approach is, even then, applicable only under specific conditions while a time-varying WACC is still able to provide reliable results. In conclusion, the WACC approach is a valid workhorse whose results can be economically interpreted.
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Vélez-Pareja, Ignacio, and Joseph Tham. "Market value calculation and the solution of circularity between value and the weighted average cost of capital WACC." RAM. Revista de Administração Mackenzie 10, no. 6 (December 2009): 101–31. http://dx.doi.org/10.1590/s1678-69712009000600007.
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Most finance textbooks present the Weighted Average Cost of Capital (WACC) calculation as: WACC = Kd×(1-T)×D% + Ke×E%, where Kd is the cost of debt before taxes, T is the tax rate, D% is the percentage of debt on total value, Ke is the cost of equity and E% is the percentage of equity on total value. All of them precise (but not with enough emphasis) that the values to calculate D% y E% are market values. Although they devote special space and thought to calculate Kd and Ke, little effort is made to the correct calculation of market values. This means that there are several points that are not sufficiently dealt with: Market values, location in time, occurrence of tax payments, WACC changes in time and the circularity in calculating WACC. The purpose of this note is to clear up these ideas, solve the circularity problem and emphasize in some ideas that usually are looked over. Also, some suggestions are presented on how to calculate, or estimate, the equity cost of capital.
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Cala Ibáñez, Geraldine, Erika Noriega Ardila, and Alfonso Enrique Gualdrón López. "El Impacto del WACC (Weighted Average Cost of Capital) en la valoración de empresas." Innovando En La U, no. 9 (December 1, 2017): 95–109. http://dx.doi.org/10.18041/2216-1236/innovando.9.2017.3898.
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El artículo se desarrolla en función de la importancia que tiene el impacto de los métodos para la valoración de empresas, tratando específicamente del WACC; por sus siglas en inglés: Weighted Average Cost of Capital (Promedio Ponderado del Costo de Capital), se ha planteado como interrogante, ¿Cuál es la importancia del WACC (Weighted Average Cost of Capital) en la valoración de empresas Implementando el tipo de investigación descriptivo y mediante la estructura de su fórmula, se pretende exponer la conexión que tienen los diferentes elementos que lo integran, así como la necesidad de identificar los activos que realmente generan flujos de efectivo, es decir, activos de capital, reconociendo a su vez, la forma como estos activos se financian a través de los pasivos y el patrimonio. Los aspectos que se deben considerar a la hora de valorar una empresa son múltiples, ya que el valor varía de acuerdo a las percepciones o a las razones de los interesados, la información, el sector, el contexto y el método empleado, entre otros. La conclusión principal, es que en todo análisis de inversión de una empresa es indispensable un proceso de valoración, debido a la trasferencia implícita de valor, y a la definición de puntos importantes para su normal funcionamiento y el eficiente desarrollo de su actividad.
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Pacheco Mexzon, Raimundo Renaun. "WACC y oportunidades de inversión." Pensamiento Crítico 19, no. 1 (February 18, 2015): 123. http://dx.doi.org/10.15381/pc.v19i1.11024.
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Considerando que los grandes proyectos de inversión de una empresa se financian con un porcentaje de recursos propios y otro porcentaje con recursos de terceros vía deudas, surgió la inquietud de analizar en el período de 1999 al 2010 si una empresa peruana que cotiza en la Bolsa de Valores de Lima mejoró sus oportunidades de inversión. Para esto se determinó el comportamiento de su costo promedio ponderado de capital (WACC: Weighted Average Cost of Capital).
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Garcia, Carlos S., Jimmy Agustin Saravia Matus, and David A. Yepes. "The weighted average cost of capital over the lifecycle of the firm: Is the overinvestment problem of mature firms intensified by a higher WACC?" Corporate Board role duties and composition 12, no. 2 (2016): 96–103. http://dx.doi.org/10.22495/cbv12i2c1art4.
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Firm lifecycle theory predicts that the Weighted Average Cost of Capital (WACC) will tend to fall over the lifecycle of the firm (Mueller, 2003, p. 80-81). However, given that previous research finds that corporate governance deteriorates as firms get older (Mueller and Yun, 1998; Saravia, 2014) there is good reason to suspect that the opposite could be the case, that is, that the WACC is higher for older firms. Since our literature review indicates that no direct tests to clarify this question have been carried out up till now, this paper aims to fill the gap by testing this prediction empirically. Our findings support the proposition that the WACC of younger firms is higher than that of mature firms. Thus, we find that the mature firm overinvestment problem is not intensified by a higher cost of capital, on the contrary, our results suggest that mature firms manage to invest in negative net present value projects even though they have access to cheaper capital. This finding sheds new light on the magnitude of the corporate governance problems found in mature firms.
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Franc-Dąbrowska, Justyna, Magdalena Mądra-Sawicka, and Anna Milewska. "Energy Sector Risk and Cost of Capital Assessment—Companies and Investors Perspective." Energies 14, no. 6 (March 14, 2021): 1613. http://dx.doi.org/10.3390/en14061613.
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This paper aims to identify the costs of capital in a group of companies from the energy sector by including an investor and market risk approach. The study also concerns the company’s Weighted Average Cost of Capital (WACC) cost intra-industry analysis related to sector characteristics such as total assets, revenues, market capitalization, and companies’ age. In order to assess the intergroup relationships, basic correlation relationships were compared and a nonparametric test of variance was performed. The period under study covered the years 2015–2019. The conducted research evaluates groups of companies that dedicated their activity to a particular energy intra-industry division under numerous regulations in Europe. The study contributes to assessing the level of risk among energy listed companies in European capital markets based on capital structure valuation. The study results underline the role of the cost of equity financing, which was twice as high as the cost of debt. The highest WACC was related to the Beta indicator that also expressed the political and regulatory risk over the investigated period. Across debt cost analysis, the role of effective tax rate decreased the level of WACC. The highest level of WACC was noticed among uranium and integrated oil and gas companies. The study contributes to information asymmetry theory related to the cost of capital assumptions.
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Grigoryev, V. V. "Specifics of the Discount Rate Calculaton in the Business Valuation." Economics, taxes & law 11, no. 3 (November 6, 2018): 83–88. http://dx.doi.org/10.26794/1999-849x-2018-11-3-83-88.
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The paper examines two main methods of the discount rate calculation for business valuation: cumulative and weighted average capital cost (WACC), discloses the importance of business valuation for improving the business activity of a company, proposes the principles of the discount rate calculation, examines ways to determine additional risks in the implementation of the cumulative method, and analyzes the costs of the equity and borrowed capital in the implementation of the WACC method. The purpose of the research was to perform a comprehensive analysis of the methods for calculating cash flow discount rates for equity capital and for all invested capital. The research resulted in the development of methods for measuring additional risks in the calculation of the cash flow discount rate for equity and identifying risks in the calculation of the weighted average discount rate of the cash flow for the total invested capital. The research findings can be used for boosting business activities as well as for business valuation and management. It is concluded that every percent of additional risk in the discount rate calculation increases the size of the rate and reduces the cost of a valuated business.
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Vélez-Pareja, Ignacio, Joseph Tham, and Viviana Fernández. "Adjustment of the WACC with Subsidized Debt in the Presence of Corporate Taxes: The Finite-Horizon Case." Estudios de Administración 12, no. 2 (February 5, 2020): 45. http://dx.doi.org/10.5354/0719-0816.2005.56458.
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When discounting free-cash flows (FCF) at the Weighted Average Cost of Capital (WACC), we assume that the cost of debt is the market, unsubsidized rate. With debt at the market rate and perfect capital markets, debt only creates value in the presence of taxes through the tax shield. In some cases, the firm may be able to obtain a loan at a rate that is below the market rate. With subsidized debt and taxes, there would be a benefit to debt financing, and the unleveraged and leveraged values of the cash flows would differ. The benefit of lower tax savings are offset by the benefit of the subsidy. These two benefits have to be introduced explicitly. In this article, we present the necessary adjustments to the WACC and the cost of leveraged equity under the existence of subsidized debt and taxes in a multiple-period setting. We analyze the cases of the WACC applied to the FCF and the WACC applied to the capital-cash flows (CCF). We also utilize the Adjusted Present Value (APV) to consider both the tax savings and the subsidy. We show that all these different approaches give the same answer.
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Charisma, Bryan, and Encep Amir. "Economic Value-Added Creation by Optimizing Capital Structure in Project Finance." International Journal of Applied Research in Management and Economics 3, no. 2 (December 30, 2020): 46–60. http://dx.doi.org/10.33422/ijarme.v3i2.446.
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Infrastructure Projects are large investment by the public and/or private sector that required enormous financial resource commitment to build physical asset and facilities needed for economic development so that the company need project financing to support with. Project finance is based on debt repayment from project companies’ revenue and not on the sponsors or the developer’s balance sheet, so the project companies should assure the cash flow is sufficient for debt repayment and dividend payment. Beside that investors still have to analyze the value created in that project with highest positive Economic Value Added. Net Operating Profit After Tax (NOPAT) need to cover cost of invested capital to create value so that the ratio of NOPAT to total Project Cost (Return on Invested Capital) is should be more than the weighted average cost of capital (WACC). The capital structure doesn’t have an optimum weight and cost as long as the Return on Invested Capital (ROIC) higher than WACC.
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Gelo, Tomislav, Željko Vrban, and Dalibor Pudić. "Allowed Revenue of Network System Operators in the Croatian Energy Sector and Interest Rate Changes on the Croatian Capital Market." Zagreb International Review of Economics and Business 22, s2 (December 1, 2019): 73–91. http://dx.doi.org/10.2478/zireb-2019-0028.
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Abstract The energy sector is characterized by market and monopoly activities. Monopoly activities include network activities, transmission and distribution of electricity, and transport and distribution of natural gas. For this reason, the revenue of the network activities is defined as allowed income, and it is under the control of the national energy regulator. In Croatia, this is the Croatian Energy Regulatory Agency. The allowed revenues of the network system operator in the Croatian energy sector are defined by the methodologies for individual network activities, which are based on the method of eligible costs. Network activities are usually capital-intensive activities. Capital cost is an element of the eligible cost method and is accounted for as a weighted average cost of capital (WACC). WACC affects the allowed revenue of the network system operator and the network tariff. It depends on the interest rates on debt capital, the risk-free rate, the market risk premium and the corporate tax rate. Changing the interest rate on the capital market, which also depends on the credit risk of the country, affects both the change in WACC and the change of tariffs for transport / transmission of energy. Amortization and operating expenses of the network operator, approved by the energy regulator, also have a significant impact on allowed revenues. The impact of the WACC change on the allowed revenue and network tariffs of network system operators has a different impact on the network tariffs, which depends on the structure of the eligible costs of a particular network system operator. Changing WACC affects the changes in tariffs of the network system operator. The aim of the paper is to determine how an interest rate change affects the WACC and how the change in WACC affects the change in the allowed revenue and the network tariff of the gas transport operator and the transmission of electricity in Croatia. The paper will analyse the tariffs of electricity transmission and natural gas transport in Croatia and compare them with those in the European Union.
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Markauskas, Mantas, and Asta Saboniene. "Evaluation of Capital Cost: Long Run Evidence from Manufacturing Sector." Engineering Economics 31, no. 2 (April 30, 2020): 169–77. http://dx.doi.org/10.5755/j01.ee.31.2.21439.
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The article is directed to determine the most appropriate method for evaluating cost of capital of a manufacturing sector and, using the methodology, to perform a case study of Lithuanian manufacturing sector. For evaluation of cost of capital, calculation of Weighted Average Capital Cost was chosen, as literature analysis distinguished this method as the most widely accepted and used. Some changes were made to the methodology of WACC evaluation in order to adapt the method for countries, which do not contain liquid, mature financial markets, like using country’s credit ranking to assess risk premium and adding this premium to base premium for maturelly developed equity markets. The case study of Lithuanian manufacturing sector was performed for the period of 2001-2016. Empirical study revealed that required rate of return on separate WACC components evolved differently between the years of 2001-2016. Average annual return on equity for the period 2001-2016 was 7.7%, while average annual return on debt was only 4.4%. In the year of 2015 weight of equity capital, first time during the analyzed period, exceeded 50%. In the same year, ratio of net profit before taxes to total assets of Lithuanian manufacturing sector also reached the highest value at the time, later surpassed in 2016. This fact demonstrates, that increased free cash flows from the operations were reinvested into further development of the companies. To maximize value of the shareholders, it would be preferable to pay out portion of earnings as dividends and finance growth with debt, as it is currently a cheaper alternative.
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Oberholzer, Merwe. "A Model To Estimate Firms Accounting-Based Performance: A Data Envelopment Approach." International Business & Economics Research Journal (IBER) 13, no. 6 (October 31, 2014): 1301. http://dx.doi.org/10.19030/iber.v13i6.8921.
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The objective of the study was to follow a logical inductive approach to develop a Data Envelopment Analysis (DEA) model to estimate the relative technical efficiency of firms. The Du Pont analysis theory as conceptual framework was applied using primarily readily available accounting line-items as input and output variables. From an interpretive epistemological paradigm and analytical reasoning, a new DEA model was developed with Weighted Average Cost of Capital (WACC), leverage and expenditure as input variables and revenue, net profit and Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) as output variables. The originality of this study is that this is the first effort to employ accounting data, based on the Du Pont analysis in a DEA model. All the input and output variables in the model were already used individually or in combinations by previous studies, except for WACC. The study argues that WACC should be employed as a proxy for the accounting line-items, equity and liabilities, since lowering WACC implies that firms are moving closer to their optimal capital structures.
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Arango, Hector, Benedito Donizeti Bonatto, Sergio Augusto dos Santos Lusvarghi, and Gil Fortes Vasconcelos. "Methodology for the Regulatory Deflation of the Weighted Average Cost of Capital (WACC) in Electricity Markets." Journal of Control, Automation and Electrical Systems 24, no. 5 (July 12, 2013): 661–67. http://dx.doi.org/10.1007/s40313-013-0058-6.
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El-qawaqneh, Shahir, Dr Nur Hidayah Binti Laili, and Dr Khairil Bin Khairi. "The Approaching Lease Accounting Regulations and Its Impact on Cost of Capital, "A Practical Case Study"." Asian Journal of Finance & Accounting 7, no. 2 (November 24, 2015): 201. http://dx.doi.org/10.5296/ajfa.v7i2.8493.
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<p>We examine how the approaching international lease accounting regulations influence credit rating of particular airfreight company, we capitalize all of still effective operation lease agreements commencing in 2002 and expired on 2026. In particular we use actual operation lease data, not only the disclosed with off-balance sheet. Our results suggest that, on average, capitalization of over 12 months term operation leases, dramatically alter capital structure. Results either reports a positive impact on weighted average cost of capital WACC, credit rating is a financial risk assessment measurement used by credit holders, investors, and analysis, our results is consistent with the lease accounting standard sitters point of view; investors and credit holders have the right to obtain a full transparent picture about firms lease activities in benefit of all parties. We also find some evidence that the positive change in WACC is related to the increasing portion of capitalized lease liability accompanied with an escalating decreeing in conventional debt, in certain conditions, this result suggests that financial lease has the advantage over conventional debt. </p>
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LANZIOTTI, Thaís Mattei, and Ricardo Letizia GARCIA. "Custo de capital das concessionárias de transmissão de energia elétrica no Brasil: um estudo da Companhia Estadual de Geração e Transmissão de Energia Elétrica - CEEE-GT." Revista Eletrônica Científica da UERGS 4, no. 2 (April 30, 2018): 320–39. http://dx.doi.org/10.21674/2448-0479.42.320-339.
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O artigo tem como objetivo demonstrar que o Custo de Capital regulatório fixado pela Agência Nacional de Energia Elétrica – ANEEL para as empresas Transmissoras de Energia Elétrica no Brasil está aquém dos reais custos de oportunidade de capital próprio e de recursos oriundos de capital de terceiros necessários aos investimentos empregados no setor. Dessa forma, realizou-se uma análise do custo de capital atual da Companhia Estadual de Geração e Transmissão de Energia Elétrica – CEEE-GT, utilizando os mesmos parâmetros e metodologias de cálculo empregadas pelo Órgão Regulador, que consiste na combinação dos modelos CAPM (Capital Asset Pricing Model) e WACC (Weighted Average Cost of Capital).
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Talwar, Shalini, and Anmol Garg. "ITC Limited: Decoding Business Segment Betas." Asian Case Research Journal 23, no. 02 (December 2019): 203–35. http://dx.doi.org/10.1142/s0218927519500081.
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OCV was seeking to improve its processes and enhance the skills of its analysts so as to provide valuable solutions for their clients in terms of the issues related to the profitability and risk of their existing business portfolios as well as the proposed new projects. A team was formed to evaluate if breaking down the weighted average cost of capital (WACC) to the divisional level could improve the quality of investment decisions by multi-division firms. ITC was chosen to analyse the entire process of breaking down WACC to the divisional level. The team had three distinct tasks to undertake. The first was the calculation of the divisional WACC for different business segments of ITC, the second was an extensive discussion on the issues that could arise in the complex computations, and the third was to take a final call on whether the breaking down of WACC to the divisional level would really add value to the future investment decisions.
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Vergara-Novoa, Cristian, Juan Pedro Sepúlveda-Rojas, Miguel D. Alfaro, and Nicolás Riveros. "Cost of Capital Estimation for Highway Concessionaires in Chile." Journal of Advanced Transportation 2018 (2018): 1–9. http://dx.doi.org/10.1155/2018/2153536.
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In this paper, we present the cost of capital estimation for highway concessionaires in Chile. We estimated the cost of equity and the cost of debt and determined the capital structure for each one of twenty-four concessionaires that operate highways. We based our estimations on the developments of Sharpe (1964), Modigliani and Miller (1958), and Maquieira (2009), which were also compared with the Brusov et al. (2015) developments. We collected stock prices for different highway concessionaires around the world from Google Finance and Reuters’ websites in order to determine the Beta of equity using a representative company. After that, we estimated the cost of equity considering Hamada (1969) and a Capital Asset Pricing Model. Then, we estimated the cost of capital using the cost of debt and the capital structure of Chile’s highway concessionaires. With all above, we were able to determine the Weighted Average Cost of Capital (WACC) for highway concessions which ranges from 5.49 to 6.62%.
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Brusov, Peter, Tatiana Filatova, Natali Orekhova, Veniamin Kulik, She-I. Chang, and George Lin. "Generalization of the Modigliani–Miller Theory for the Case of Variable Profit." Mathematics 9, no. 11 (June 3, 2021): 1286. http://dx.doi.org/10.3390/math9111286.
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For the first time we have generalized the world-famous theory by Nobel Prize winners Modigliani and Miller for the case of variable profit, which significantly extends the application of the theory in practice, specifically in business valuation, ratings, corporate finance, etc. We demonstrate that all the theorems, statements and formulae of Modigliani and Miller are changed significantly. We combine theoretical and numerical (by MS Excel) considerations. The following results are obtained: (1) Discount rate for leverage company changes from the weighted average cost of capital, WACC, to WACC–g (where g is growing rate), for a financially independent company from k0 to k0–g. This means that WACC and k0 are no longer the discount rates as it takes place in case of classical Modigliani–Miller theory with constant profit. WACC grows with g, while real discount rates WACC–g and k0–g decrease with g. This leads to an increase of company capitalization with g. (2) The tilt angle of the equity cost ke(L) grows with g. This should change the dividend policy of the company, because the economically justified value of dividends is equal to equity cost. (3) A qualitatively new effect in corporate finance has been discovered: at rate g < g* the slope of the curve ke(L) turns out to be negative, which could significantly alter the principles of the company’s dividend policy.
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Mamikonyan, K. H. "The Features of Market Value Assessment of the Objects of Intellectual Property When Conducting Forensic Expertise." Theory and Practice of Forensic Science 14, no. 2 (July 13, 2019): 128–35. http://dx.doi.org/10.30764/1819-2785-2019-14-2-128-135.
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Illicit use of intellectual property violates the rights of the person/company that owns it. The expertise of intellectual property in many ways helps to restore justice in cases of rights violation. To conduct such expertise the knowledge of not only the intellectual property rights is required, but also of the activity to which the disputed intellectual property belongs. The article discusses some approaches to assessment of the market value of intellectual property, for instance it is assumed that when calculating the discount rate of intellectual property (for example, a brand), a company’s weighted average cost of capital (WACC) can be used. A hypothesis is substantiated that the methodology for determining discount rates using the “traditional” approach, when the discount rate takes all risks into account and is applied to the most probable values of the income measure, is based on the direct observations on the capital value market for a business. It is noted that the discount rate for intangible assets not necessarily should differ from that for a business. Thus, WACC assessment method is a discount rate for the invested capital. The method of estimating the discount rate based on WACC, shows the rate of return to be paid for the use of investment capital. The latter may consist of two sources of financing: own capital and debt capital. The article provides a thorough and detailed analysis of the WACC and notes that it can be used in both financial and investment analysis to assess future returns on investments, considering the initial conditions for profitability of investment capital.
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Kivedal, Bjørnar Karlsen, and Trond Arne Borgersen. "Commercial Real Estate at the ZLB." Nordic Journal of Surveying and Real Estate Research 13, no. 1 (June 13, 2018): 32–53. http://dx.doi.org/10.30672/njsr.68989.
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This paper analyses the implications of a low interest rate environment (the zero lower bound – ZLB) for the demand of commercial real estate. The main intention of the paper is to track any asymmetry between evaluation models at ZLB relative to more “normal” interest rate levels. First we apply a conventional net-present value (NPV) approach, where the weighted average cost of capital (WACC) and the capital asset pricing model (CAPM) are used for evaluation. Considering the invariance level of systemic risk we find WACC to be an alternative to CAPM for offensive and defensive investments when interest rates are “normal”. However, at the ZLB, WACC is an alternative for investments that carry the same risk as the market and beta-values are close to one. Second, we simulate our models using US data to see how the WACC shortcut performs across different interest rate levels, and especially at ZLB, in this economy. We see differences between the period preceding the financial crisis and the period after 2010, even though the Federal Funds rate is close to zero in both periods. We relate this to the difference in systemic risk between the two periods, and show how the result in the latter period is quite equal across evaluation models.
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Jaroš, Jaroslav, Vlastimil Melichar, and Libor Svadlenka. "WACC as the Minimization Criterion of Liability Management in a Company Capital Structure Optimization." Advanced Engineering Forum 13 (June 2015): 317–23. http://dx.doi.org/10.4028/www.scientific.net/aef.13.317.
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In our study we concern with the quantification of the weighted average cost of capital, as the minimization criterion for the company capital structure optimization. To achieve more accurate estimation of the costs of capital we calculated them using four models with weights assigned on the basis of their explanatory power of the particular company. In the next step, the possibility of application of individual models and their explanatory power in the countries with poorly developed capital markets, where the necessary data for the calculations absent and there is the impact of the financial crisis, is determined. Our aim in further research is to design company liability management methodology which contains other optimization criteria.
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Ramadhani, Danur, Agus Sukoco, and Joko Suyono. "CAPITAL STRUCTURE ANALYSIS TO OPTIMIZE THE PROFITABILITY OF MSMES (CASE STUDY ON MSMES HIKMAH IN SIDOARJO, EAST JAVA, INDONESIA)." Journal of World Conference (JWC) 1, no. 2 (November 21, 2019): 241–50. http://dx.doi.org/10.29138/prd.v1i2.161.
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This study aims to analyze the capital structure used to optimize profitability in MSME embroidery shoes. This study uses descriptive research with a qualitative approach. The analytical method is used Weighted Average Cost Of Capital (WACC). The techniques of data collection in this research used interview, observation, documentation and triangulation methods. The data that used are financial transaction records and financial statements issued by the company itself. The results showed that UD. Hikmah used the composition of the capital structure consisting of debt of 20%, 80% own capital with a ROE rate of 170%. Optimization results obtained the optimal capital structure composition on the composition of debt 23% and own capital 77%. By generating a level of profitability that can provide a favorable return for business owners, with the highest calculation of ROE that is equal to 173% and the cost of capital to be borne is Rp.18.238.000 every year.
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Farida, Yuniar. "Pengembangan Model Fuzzy Project Evaluation Untuk Analisis Kelayakan Finansial Pendirian Pabrik Baru." Jurnal Matematika "MANTIK" 1, no. 1 (November 18, 2015): 22. http://dx.doi.org/10.15642/mantik.2015.1.1.22-30.
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Untuk rencana pembangunan suatu pabrik baru, aspek finansial merupakan aspek terpenting dalam evaluasi kelayakannya. Dikatakan demikian, karena sekalipun aspek lain tergolong layak, jika studi aspek finansial memberikan hasil yang tidak layak, maka usulan proyek akan ditolak karena tidak memberikan manfaat ekonomi. Dalam penelitian ini Net Present Value (NPV) digunakan sebagai metode evaluasi kelayakan finansial rencana pendirian pabrik PT. X. Dalam perhitungan NPV, salah satu faktor yang krusial adalah tarif diskonto atau discount rate yang berlaku pada masa pengembalian investasi suatu proyek. NPV suatu proyek harus dihitung dengan discount rate konstan sampai masa pengembalian investasi, meski pada kenyataannya faktor – faktor yang mempengaruhi discount rate setiap tahun tidak selalu sama, akibatnya nilai NPV menjadi samar (fuzzy). Untuk mengatasi hal tersebut, maka dilakukan suatu pemodelan untuk mendekati nilai discount rate yang tepat. Dalam penelitian ini discount rate dihitung berdasarkan nilai WACC (Weighted Average Cost of Capital) yang merupakan gabungan dari struktur modal, yaitu hutang dan ekuitas. Untuk memperoleh nilai WACC yang tepat, dilakukan pendekatan dengan menggunakan Triangular Fuzzy Number (TFN). Adapun penggunaan fuzzy dilakukan karena WACC mengandung unsur ketidakpastian yang tinggi, yang bisa membuat perhitungan WACC dengan metode konvensional menjadi samar/kabur. Dari hasil perhitungan menggunakan TFN, diperoleh nilai WACC sebesar 13.64 % dan menghasilkan NPV sebesar 6,430,464,000,000. Sedangkan nilai WACC deterministik yang dihasilkan evaluator sebesar 13.72 % dan menghasilkan NPV sebesar 6,358,310,540,000
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Battisti, Enrico, Luigi Bollani, Nicola Miglietta, and Antonio Salvi. "The impact of leverage on the cost of capital and market value." Management Research Review 43, no. 9 (March 14, 2020): 1081–96. http://dx.doi.org/10.1108/mrr-01-2019-0007.
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Purpose This paper aims to investigate the impact of leverage on the cost of capital and market value in the Indonesia Stock Exchange (IDX), where there are Sharīʿah and non-Sharīʿah compliant firms. Design/methodology/approach This study uses a mixed methods sequential exploratory design and is based on an empirical analysis undertaken with a sample of firms listed on the IDX. In particular, a qualitative analysis was conducted to identify the Sharīʿah-compliant firms and the qualitative study was designed to compare some financial elements in Sharīʿah and non-Sharīʿah compliant listed companies. The correlations among the main elements observed are considered and a principal component analysis describes the framework. Findings First, the results of the analysis show that for the Sharīʿah-compliant companies, identified as those that apply Islamic principles, the lower level of leverage that it is typical of these type of firms implies a higher cost of capital [cost of equity and weighted average cost of capital (WACC)] than non-Sharīʿah ones. Secondly, for the Sharīʿah-compliant companies, the lower level of leverage entails a higher market value measured by the multiples method (price/earning and enterprise value/operating profit) than for non-Sharīʿah ones. Originality/value This paper sheds new light on how leverage can affect the cost of capital and market value in the case of Sharīʿah and non-Sharīʿah compliant listed companies in the IDX. In particular, this research highlights the fact that Sharīʿah-compliant firms, despite having a higher WACC, create more market value compared to non-Sharīʿah compliant ones.
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Zhukov, P. E. "New Models for Analyzing Changes in Company Value Based on Stochastic Discount Rates." Finance: Theory and Practice 23, no. 3 (June 25, 2019): 35–48. http://dx.doi.org/10.26794/2587-5671-2019-23-3-35-48.
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We propose new models for analyzing changes in the value of the company using stochastic discount rates. It is shown that for the majority of the companies under study, local changes in the rate of the company value growth (percentage changes to the previous level) are not explained by the corresponding changes neither in the weighted average cost of capital (WACC), nor in the cash flows. This fact, as well as the research results by J. Cochrane, who proved that discount rates volatility is the main contributor to price volatility, became initial prerequisites for building models based on stochastic discount rates. The work presents three models built on stochastic discount rates, where cash flows are assumed to be growing with a certain trend, and the factors affecting the price of the company are described by stochastic discount factors. These models are alternative in relation to the commonly used traditional cash flow discounting (DCF) models where the free cash flow is discounted through the WACC, or the free flow to capital at the opportunity cost of equity. The first model is used to analyze the dependence of the company value on investments. It uses free cash flow subject to zero growth. The second model uses net cash flow from operating activities plus interest, minus the minimum investment subject to zero growth. The third model uses net cash flow from operating activities plus interest adjusted to taxes. This model requires to estimate the rates of the company downsizing subject to zero investment. The third model is applicable for companies with volatile investments, where it is difficult to reliably estimate free cash flow in case of zero growth. The models are designed for analysis of the factors influencing the value of the company for value-based management. Another application of the models is the evaluation of investment value of the company and the answer to the question of its possible overestimated or underestimated value. The third way to apply this model is the empirical evaluation of the weighted average cost of capital applicable to the company’s investment projects, alternative to WACC, assessed by standard methods.
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Atan, Ruhaya, Md Mahmudul Alam, Jamaliah Said, and Mohamed Zamri. "The impacts of environmental, social, and governance factors on firm performance." Management of Environmental Quality: An International Journal 29, no. 2 (March 12, 2018): 182–94. http://dx.doi.org/10.1108/meq-03-2017-0033.
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Purpose The ESG factor, which consists of environmental, social, and governance factors, represents the non-financial performance of a company. United Nations Principles for Responsible Investment invites investors to consider ESG issues when evaluating the performance of any company. Moreover, nowadays, the contribution of corporations towards sustainable development is a major concern of investors, creditors, government, and other environmental agencies. Therefore, the purpose of this paper is to examine the impact of ESG factors on the performance of Malaysian public-limited companies (PLC) in terms of profitability, firm value, and cost of capital. Design/methodology/approach A total of 54 companies are selected from Bloomberg’s ESG database that has complete ESG and financial data from 2010 to 2013. This study conducted panel data regressions such as the pooled OLS, fixed effect, and random effect. Findings Based on the regression results, there is no significant relationship between individual and combined factors of ESG and firm profitability (i.e. ROE) as well as firm value (i.e. Tobin’s Q). Moreover, individually, none of the factors of ESG is significant with the cost of capital (weighted average cost of capital, WACC), but the combined score of ESG positively and significantly influences the cost of capital (WACC) of a company. Practical implications As this is a new study on Malaysia, the findings of this study will be useful to investors, SRI analysts, policy makers, and other related agencies. Originality/value To the best of the authors’ knowledge, this study is among the first empirical study to examine the impact of ESG factors on the performance of Malaysian PLC in terms of profitability, firm value, and cost of capital.
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Peña Balderrama, Jenny, Thomas Alfstad, Constantinos Taliotis, Mohammad Hesamzadeh, and Mark Howells. "A Sketch of Bolivia’s Potential Low-Carbon Power System Configurations. The Case of Applying Carbon Taxation and Lowering Financing Costs." Energies 11, no. 10 (October 12, 2018): 2738. http://dx.doi.org/10.3390/en11102738.
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This paper considers hypothetical options for the transformation of the Bolivian power generation system to one that emits less carbon dioxide. Specifically, it evaluates the influence of the weighted average cost of capital (WACC) on marginal abatement cost curves (MACC) when applying carbon taxation to the power sector. The study is illustrated with a bottom-up least-cost optimization model. Projections of key parameters influence the shape of MACCs and the underlying technology configurations. These are reported. Results from our study (and the set of assumptions on which they are based) are country-specific. Nonetheless, the methodology can be replicated to other case studies to provide insights into the role carbon taxes and lowering finance costs might play in reducing emissions.
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Ghigo, Alberto, Lorenzo Cottura, Riccardo Caradonna, Giovanni Bracco, and Giuliana Mattiazzo. "Platform Optimization and Cost Analysis in a Floating Offshore Wind Farm." Journal of Marine Science and Engineering 8, no. 11 (October 23, 2020): 835. http://dx.doi.org/10.3390/jmse8110835.
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Floating offshore wind represents a new frontier of renewable energies. The absence of a fixed structure allows exploiting wind potential in deep seas, like the Atlantic Ocean and Mediterranean Sea, characterized by high availability and wind potential. However, a floating offshore wind system, which includes an offshore turbine, floating platform, moorings, anchors, and electrical system, requires very high capital investments: one of the most relevant cost items is the floating substructure. This work focuses on the choice of a floating platform that minimizes the global weight, in order to reduce the material cost, but ensuring buoyancy and static stability. Subsequently, the optimized platform is used to define a wind farm located near the island of Pantelleria, Italy in order to meet the island’s electricity needs. A sensitivity analysis to estimate the Levelized Cost Of Energy is presented, analyzing the parameters that influence it most, like Capacity Factor, Weighted Average Capital Cost (WACC) and number of wind turbines.
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Pacheco Mexzon, Raimundo Renaun. "WACC y oportunidades de inversión de las empresas peruanas del sector industrial que cotizan en bolsa: Periodo 1999-2010." Pensamiento Crítico 21, no. 1 (November 2, 2016): 069. http://dx.doi.org/10.15381/pc.v21i1.12637.
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Este artículo es producto de una investigación que se desarrolló luego de plantearnos las siguientes preguntas: (a) ¿Cuál ha sido el comportamiento del costo del capital promedio ponderado (WACC: Weighted Average Cost of Capital) de las empresas peruanas del sector industrial que cotizan en la Bolsa de Valores de Lima durante el periodo 1999 - 2010? y (b) ¿Qué empresas de este sector de la economía peruana que cotizan en la Bolsa de Valores de Lima han presentado las mejores oportunidades de inversión en el periodo de análisis?Para responderlas se desarrolló la investigación y se concluyó que no todas las empresas presentan las mismas oportunidades de inversión y esto difiere según el tamaño de la empresa y el giro del negocio.
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Inayati, Titik, Bambang Subroto, Achmad Fachan, and Atim Djazuli. "Analyzing Islamic Micro Finance Performance with Economic Value Added (EVA): Learning from Baitul Wat Tamwil (BMT) Usaha Gabungan Terpadu Sidogiri Indonesia." Business and Management Horizons 2, no. 2 (November 3, 2014): 29. http://dx.doi.org/10.5296/bmh.v2i2.6103.
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Analyzing Islamic Micro Finance Performance with Economic Value Added (EVA). EVA analysis is used for deciding the regulations of investment of BMT. Monetary report is analyzed with EVA, Net Operating Profit After Tax (NOPAT), Weighted Average Cost of Capital (WACC), and Invested Capital. The result of performance using EVA shows that BMT can create value. NOPAT underwent a significant increase compare with the capital fund. The profit that is created is higher than accounting profit which shows that BMT has a very good performance. The capital which is consists of debt and equity has been used efficiently and effectively so that it can increase the profit. The BMT officer should pay attention to the financial performance in order to decide the regulation and investment that will be done. Investment and activity which is done by BMT should be resulted more value so that it can give the real profit for the development of BMT.
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Kassai, José Roberto, Sílvia Kassai, and Alexandre Assaf Neto. "Índice de especulação de valor agregado: IEVA." Revista Contabilidade & Finanças 13, no. 30 (December 2002): 32–45. http://dx.doi.org/10.1590/s1519-70772002000300003.
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Por meio deste artigo propõe-se a criação de um modelo de análise de balanços denominado de Índice de Especulação de Valor Agregado (IEVA), estabelecido com base em uma formulação matemática que envolve conceitos relacionados com a riqueza econômica de um empreendimento, tais como economic value added (EVA), market value added (MVA), weighted average cost of capital (WACC). Comparativamente a um outro modelo já existente na literatura: o Tobin's Q, contribui com novas análises; permite identificar o nível de especulação atribuído ao valor de uma empresa (market value), estabelecido em função do mercado de capitais (stock prices) e, de acordo com a análise proposta dos quadrantes do IEVA, evidencia o ciclo de vida das empresas. Mostra, por exemplo, como o valor das empresas que têm suas ações negociadas na The National Association of Securities Dealer Automated Quotation (NASDAQ) estaria "superestimado".
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Bennouna, Karim, Geoffrey G. Meredith, and Teresa Marchant. "Improved capital budgeting decision making: evidence from Canada." Management Decision 48, no. 2 (March 9, 2010): 225–47. http://dx.doi.org/10.1108/00251741011022590.
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PurposeThe purpose of this article is to evaluate current techniques in capital budget decision making in Canada, including real options, and to integrate the results with similar previous studies.Design/methodology/approachA mail survey was conducted, which included 88 large firms in Canada.FindingsTrends towards sophisticated techniques have continued; however, even in large firms, 17 percent did not use discounted cash flow (DCF). Of those which did, the majority favoured net present value (NPV) and internal rate of return (IRR). Overall between one in ten to one in three were not correctly applying certain aspects of DCF. Only 8 percent used real options.Research limitations/implicationsOne limitation is that the survey does not indicate why managers continue using less advanced capital budgeting decision techniques. A second is that choice of population may bias results to large firms in Canada.Practical implicationsThe main area for management focus is real options. Other areas for improvement are administrative procedures, using the weighted average cost of capital (WACC), adjusting the WACC for different projects or divisions, employing target or market values for weights, and not including interest expenses in project cash flows. A small proportion of managers also need to start using DCF.Originality/valueThe evaluation shows there still remains a theory‐practice gap in the detailed elements of DCF capital budgeting decision techniques, and in real options. Further, it is valuable to take stock of a concept that has been developed over a number of years. What this paper offers is a fine‐grained analysis of investment decision making, a synthesis and integration of several studies on DCF where new comparisons are made, advice to managers and thus opportunities to improve investment decision making.
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Vayas-Ortega, Germania, Cristina Soguero-Ruiz, José-Luis Rojo-Álvarez, and Francisco-Javier Gimeno-Blanes. "On the Differential Analysis of Enterprise Valuation Methods as a Guideline for Unlisted Companies Assessment (I): Empowering Discounted Cash Flow Valuation." Applied Sciences 10, no. 17 (August 25, 2020): 5875. http://dx.doi.org/10.3390/app10175875.
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The Discounted Cash Flow (DCF) method is probably the most extended approach used in company valuation, its main drawbacks being probably the known extreme sensitivity to key variables such as Weighted Average Cost of Capital (WACC) and Free Cash Flow (FCF) estimations not unquestionably obtained. In this paper we propose an unbiased and systematic DCF method which allows us to value private equity by leveraging on stock markets evidences, based on a twofold approach: First, the use of the inverse method assesses the existence of a coherent WACC that positively compares with market observations; second, different FCF forecasting methods are benchmarked and shown to correspond with actual valuations. We use financial historical data including 42 companies in five sectors, extracted from Eikon-Reuters. Our results show that WACC and FCF forecasting are not coherent with market expectations along time, with sectors, or with market regions, when only historical and endogenous variables are taken into account. The best estimates are found when exogenous variables, operational normalization of input space, and data-driven linear techniques are considered (Root Mean Square Error of 6.51). Our method suggests that FCFs and their positive alignment with Market Capitalization and the subordinate enterprise value are the most influencing variables. The fine-tuning of the methods presented here, along with an exhaustive analysis using nonlinear machine-learning techniques, are developed and discussed in the companion paper.
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Bluszcz, Anna, and Anna Kijewska. "Factors Creating Economic Value Added of Mining Company." Archives of Mining Sciences 61, no. 1 (April 1, 2016): 109–23. http://dx.doi.org/10.1515/amsc-2016-0009.
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Abstract The company’s strategy that focuses on the growth of the company represented by the economic value added (EVA) requires the identification of factors affecting the size of the EVA. For this purpose, in the paper the formula for EVA was transformed in such a way as to reveal the determinants affecting its value. Three levels of disaggregation of EVA were assumed. At the first level EVA depends on the amount of invested capital (IC) and economic spread (EC). At the second level economic spread is expressed using the weighted average cost of capital (WACC) and the return on invested capital (ROIC). The third level takes into account the capital structure (wi), the cost of capital (ki), the profit margin (NOPAT/S) and invested capital turnover ratio (S/IC). Such disaggregation can be continued on the next levels of detail. Using the method of successive substitutions an analysis of the cause and effect of the mining company, was conducted. In this way, we can indicate which factors and to what extent affected negatively and positively the change of EVA in the analysed year compared to the previous year. Such analysis allows decision makers to determine a strategy directed to the increase of the mining company’s value.
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Villegas Cortés, Andrés, and Luz Ángela Rojas La Rota. "LA FUSIÓN CARULLA-VIVERO, ¿CREÓ VALOR?" Revista Civilizar de Empresa y Economía 5, no. 10 (December 10, 2014): 93. http://dx.doi.org/10.22518/2462909x.510.
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El presente trabajo busca determinar si la fusión de las empresas Carulla-Vivero ocurrida en el año 2000 generó valor. Para esto, se estudia el conceptode valor, posteriormente se explica el estudio de caso como metodología deinvestigación para concluir con la exposición del caso mismo de la fusión, ysu resultado. Una vez realizado el análisis de las dos empresas, se hace unacomparación y una valoración por dos metodologías ampliamente aceptadas:los métodos Economic Value Added (EVA) - Weighted Average Cost of Capital(WACC) y Flujo de Caja Histórico, con lo cual se explora en su interior la fusióny se explican los resultados obtenidos en ella. Finalmente, se hace una seriede observaciones, conclusiones y recomendaciones sobre la fusión, asícomo de la metodología del estudio de caso, para el abordaje de temas de laadministración.
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Bobinaite, Viktorija. "Financial Leverage and its Determinants in Companies Producing Electricity from Wind Resources in Latvia." Economics and Business 27, no. 1 (August 1, 2015): 29–39. http://dx.doi.org/10.1515/eb-2015-0005.
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Abstract The paper aims to analyse the development of the financial leverage and its determinants in companies producing electricity from wind resources in Latvia during 2005-2012. The financial ratio technique is used to compute the financial leverage in the companies and the regression analysis method is employed to determine the relationships between variables. The results of the analysis revealed that wind electricity generating companies use substantial share of debt and the financial leverage is increasing. Statistically significant relationships were found between the financial leverage and profitability of companies, their growth opportunities, collateral value of assets, size of the company and an effective tax rate. Results will be used to construct weighted average cost of capital (WACC) for the economic assessment of investment into wind electricity sector in Latvia.
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Иванишевић, Милорад. "Системatски ризик и оцена рентабилности инвестиционих пројеката // Systematic risk and assessment of investment projects profitability." ACTA ECONOMICA 11, no. 18 (February 6, 2013): 105. http://dx.doi.org/10.7251/ace1318105i.
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Резиме: У раду се прво разматра просечна цена капитала као критеријум за оцену рентабилности инвестиционих пројеката. После тога се расправља о моделу процењивања капиталних улагања, који објашњава међузависност приноса на уложени капитал и систематског ризика. Затим се анализира повезаност ова два модела с обзиром на директну везу захтеваних стопа приноса на дуг и сопствени капитал са њиховим бета коефицијентима. Такође се констатује да се захтевана стопа приноса утврђена коришћењем Модела процењивања капиталних улагања може, под одређеним условима, користити као критеријум рентабилности инвестиционих пројеката.Summary: In the article is, first of all, considered weighted average cost of capital (WACC) as criteria for estimation profitability of investments. Afterwards, it is considered the Capital Asset Princing Model offering explanation for invested equity return correlation and systematic risk. Then it is analyzed connection between these two models in regard to direct connection of required rates of return on debt and equity with their beta coefficients. It is also stated that required rates of return affirmed by usage of the Capital Asset Princing Model can, under certain conditions, be used as criteria for estimation profitability of investments.
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Harvey, L. D. Danny. "Clarifications of and improvements to the equations used to calculate the levelized cost of electricity (LCOE), and comments on the weighted average cost of capital (WACC)." Energy 207 (September 2020): 118340. http://dx.doi.org/10.1016/j.energy.2020.118340.
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Tereshenko, Oleg, Nataliya Voloshanyk, and Dmytro Savchuk. "RATE OF COSTS ON INVESTMENT CAPITAL IN EMERGING MARKETS." SOCIETY. INTEGRATION. EDUCATION. Proceedings of the International Scientific Conference 6 (May 21, 2019): 665. http://dx.doi.org/10.17770/sie2019vol6.3957.
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To date, there is no adequate methodology for calculating the discount rate that would satisfy most financial analysts. The most common approach to determining the discount rate is to use the weighted average cost of capital (WACC) algorithm. The calculation of capital costs (discount rates) in emerging market countries (EM) is characterized by a number of problems related to the information inefficiency of the capital market, instability of demand for products, inflation, macroeconomic and legal uncertainty and a lack of proper payment discipline. Even more complex are the corresponding calculations during the financial crisis, accompanied by hyperinflation, a fall or significant fluctuations in the rate of the national monetary unit, trade wars, and the collapse of the banking system.Especially problematic for emerging markets is the calculation of the cost of equity (investment) capital. In developed markets, the classical CAPM model is used for these purposes. Taking into account the lack of an effective capital market in EM-related countries, it is quite difficult to determine the standard parameters of the model (risk-free rate of return, market risk premium, beta factor). Significant problems also lie in the sources and shadow schemes for paying high premiums for the risks of investing capital in EM. The aim of the paper is to substantiate recommendations on the procedure for calculating the rate of costs for own (investment) capital, taking into account the specifics of corporate activities in countries related to EM.
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Martín, Helena, Sergio Coronas, Àlex Alonso, Jordi de la Hoz, and José Matas. "Renewable Energy Auction Prices: Near Subsidy-Free?" Energies 13, no. 13 (July 1, 2020): 3383. http://dx.doi.org/10.3390/en13133383.
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The latest trend of low record bid prices in renewable energy auctions has raised concerns on the effective deployment of the winning projects. A survey of recent auction data from several countries, technologies and remuneration designs is analysed and compared with the corresponding levelised costs of energy (LCOEs) to draw first insights on their viability. A critical assessment of the ability of the LCOE for determining the adequate bid level is then performed and the preliminary unviable results of selected mature technologies are further investigated using improved profitability metrics as the project and equity net present value (NPV) and internal rate of return (IRR). As representative examples, the analysed Danish 2019 onshore wind and photovoltaics (PV) auctions require very specific scenarios to become viable, which cast doubts on their effective implementation. Under the assumptions of a realistic base case, the sensitivity analysis revealed that either 59% of decrease in the weighted average cost of capital (WACC), or 37% of discount on the investment cost or a 3.6% annual increment in the mean market price is needed for achieving the NPV break-even in the onshore wind case. Likewise, the PV case is unprofitable whatever the WACC may be, and either a 60% discount on the investment cost or a 6.8% annual increment in the mean market price is needed for the NPV to break-even. Although some projects could be relying on indirect revenues or additional sources of incomes beyond the auction support, it remains to see if they are finally materialised.
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Wan, Xinya, and Yonghai Li. "Evaluation and Management of Intangible Assets of High-Tech Enterprises from the Perspective of Monte Carlo and Network Security." Mobile Information Systems 2021 (June 30, 2021): 1–7. http://dx.doi.org/10.1155/2021/9661531.
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High-tech enterprises are knowledge- and technology-intensive economic entities. These entities are considered intangible assets and an essential part of the enterprises. The fast and effective development of high-tech enterprises requires scientific evaluation of intangible assets. Therefore, the evaluation of intangible assets of high-tech enterprises has become more significant in the evaluation industry. This article uses the Monte Carlo method to evaluate the intangible assets of high-tech enterprises from the perspective of network security. This paper combines the weighted average cost of capital (WACC) with the capital asset pricing model (CAPM) to determine the rate of return. It uses the analytic hierarchy process (AHP) method to determine the weight. It determines the value of various intangible assets based on the contribution of various intangible assets to the overall intangible asset value. Moreover, the Monte Carlo model is used in the probability determination process to evaluate intangible assets. In practical applications of a high-tech enterprise, the advancement and practicability of this method are verified by comparing it with the income method.
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Yanuar, Citra Sari Kusuma Wardhani Dan. "Analisis Kelayakan Pengembangan Proyek Apartemen Citra Living Citra Garden City." Jurnal Manajemen Bisnis dan Kewirausahaan 3, no. 6 (November 29, 2019): 60. http://dx.doi.org/10.24912/jmbk.v3i6.6098.
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Jakarta is experiencing a favourite residential growth due to the high level of urban migration to Indonesia’s capital. Therefore, PT CD, through its subsidiary, PT CMG, KSO, tries to fulfill the increasing demand of residential housing by developing a ± 1 ha of land in the West of Jakarta. The development is called the Apartement Citra Living project. This paper is developed to determine the feasibility of the project through cash flow sensitivity analysis. There are 2 (two) assumptions used, which are : the normal, and optimistic assumptions. These assumptions are tested through 4 (four) calculation methods: Payback Period, Net Present Value (NPV), Internal Rate of Return (IRR) and Profitability Index (PI). The results of the sensitivity analysis are as follows Payback periods for the project are 8 months for normal and, 3 months for optimistic; The NPV is positive for all assumptions; The IRR for the normal and optimistic assumptions are higher than the Weighted Average Cost of Capital (WACC) 10%. The PI for normal and optimistic assumptions are more than 1 (one). So, the project is feasible. Therefore, based on the results of the sensitivity analysis of the project’s cash flow, it is concluded that the Apartement Citra Living project is a profitable business decision. To increase profitability level, the company should try to find other financing alternatives to lower the cost of capital.
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Svoboda, Jaroslav, and Martina Novotná. "Multifactor productivity analysis in the sample of agricultural enterprises." Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis 59, no. 7 (2011): 395–402. http://dx.doi.org/10.11118/actaun201159070395.
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The assessment of Total Factor Productivity (TFP), i.e. inclusion of all factors of production seems to be an easy task. However, its calculation can meet with some difficulties. The calculation of inputs is complicated as different factors of production, which are processes to outputs, has to be transformed to a common factor. The aim of the paper was to analyse relations of efficiency of factors of production measured by factor productivity based on economic profit and returns (profitability) of enterprise measured by the most synthetic profitability indicator (Return on Assets, ROA). A partial aim was to consider risk analysed through ratio of cost to capital (Weighted Average Cost of Capital – WACC) performed in the sample on agricultural enterprises in 2004–2008. The database used for the research consisted of 622 agricultural enterprises. The methodology of calculation was based on an approach according to Neumaierová and Neumaier (2002) considering the economic profit. This methodology suits well to conditions of Czech financial statements (a balance sheets and a profit and loss statement). The TFP assessment was connected to the return on assets and the correlation analysis revealed dependences of calculated indicators. The paper is a part of the MSM 6007665806 research project.
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Wichlinski, Martin, and Rajendra Rajaram. "The Use of RONA/WACC as a Proxy for Investment Quality." Journal of Economics and Behavioral Studies 10, no. 6A (January 16, 2019): 177–85. http://dx.doi.org/10.22610/jebs.v10i6a.2673.
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Proxies for stock investment quality have varied from multi-factor models such as the Piotroski F-Score to simple one-factor return on capital measures. Economic value added, measured as the ratio of return on net assets relative to the weighted average cost of capital, has not been used as a proxy for stock quality. The aim of this study was to demonstrate that economic value added can be used effectively as a proxy for stock quality. Industrial stocks listed on the JSE ALSI between 31 January 2006 and 31 December 2015 comprised the population of this study. Three portfolios (comprising 33% of the population each) were formed monthly and were held for 12 months leading to the creation of 360 portfolios. The portfolios were formed on the basis of the RONA/WACC ratio; stocks with the highest ratios comprised HEV portfolios, stocks with the lowest ratios comprised LEV portfolios and stocks with median ratios comprised MEV portfolios. HEV portfolios earned a mean return of 19.52% relative to 13.09% for MEV portfolios, 16.31% for LEV portfolios and 13.73% for the overall equity market. The maximum cumulative value of R1 invested in HEV portfolios was equal to R5.30 as at the end of the study period. The maximum cumulative value of R1 invested in MEV and LEV portfolios was equal to R4.14 and R4.40 respectively. The maximum corresponding value of R1 invested in the general equity market was, R3.50. The superior returns of HEV portfolios were observed to be more risk efficient relative to both MEV and LEV portfolios and relative to the market portfolio on the basis of higher Sharpe Ratios. The RONA/WACC ratio has thus been shown to have been an effective proxy for stock quality.
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Mardawiyah Daryanto, Wiwiek, Arti Primadona, and . "Capital Budgeting Model and Sensitivity Analysis of the Conventional Oil Production Sharing Contract (PSC) Fiscal Systems: Empirical Evidence from Indonesia." International Journal of Engineering & Technology 7, no. 3.21 (August 8, 2018): 5. http://dx.doi.org/10.14419/ijet.v7i3.21.17084.
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Oil is a vital commodity that controls the livelihood of people. It is also the main resource of state revenue. The oil industry in Indonesia has started since 1883. However, only 40 percent of the total sedimentary basin in Indonesia has been explored since that time (Ministry of Energy and Mineral Resources of Republic of Indonesia, 2015). Accordingly, the major fields are getting drain, while the domestic consumption of oil is increasing. Low investment is one of the factors that cause the declines of oil production. Working Areas (WA) which had been offered to the potential investors by the Government of Indonesia (GOI) during the period ended September 10, 2015, were unsold, followed by unsuccessful of seven WAs offered in the period from July 18 to October 28, 2016, due to an unattractive terms and conditions of PSC Fiscal Systems in the decreasing of oil price situation currently. Oil business requires high capital, high technology, high risks, long terms commitment, but high returns. Therefore, GOI always depends on the private investor to run exploration and exploitation of oil mining. The purpose of this study is to measure the feasibility of oil industry investment and to examine the attractive terms and conditions of PSC Fiscal Systems. The data were collected from the ten PSC Fiscal Systems which had been started the business since 1968 - 2014. Capital Budgeting Model indicators: Payback Period, Net Present Value (NPV), Internal Rate of Return (IRR), and Weighted Average Cost of Capital (WACC) were used to analyze the data and sensitivity analysis. The finding shows that the attractive terms and conditions of PSC Fiscal Systems are a maximum split of 50 percent for GOI, under controllable Cost Recovery (CR), the oil price of USD 50.00/barrel, and WACC <20%. The authors believe that the findings will be beneficial for GOI and potential oil investors to carry out a fair negotiation, to come up with a win-win solution.
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Serri, Laura, Lisa Colle, Bruno Vitali, and Tullia Bonomi. "Floating Offshore Wind Farms in Italy beyond 2030 and beyond 2060: Preliminary Results of a Techno-Economic Assessment." Applied Sciences 10, no. 24 (December 13, 2020): 8899. http://dx.doi.org/10.3390/app10248899.
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At the end of 2019, 10.5 GW of wind capacity was installed in Italy, all onshore. The National Integrated Climate and Energy Plan sets a target of 18.4 GW of onshore wind capacity and 0.9 GW of offshore wind capacity by 2030. Significant exploitation of offshore wind resources in Italy is expected after 2030, using floating wind turbines, suitable for water depths greater than 50 m. This technology is at the demonstration phase at present. Results of a preliminary techno-economic assessment of floating wind plants in Italian marine areas in a medium (2030) and long-term (2060) scenario are presented. In 2030, a reference park with 10 MW wind turbines will be defined, and parametric costs, depending on distance from shore, were assessed. In 2060, possible wind resource variations due to climate change, and cost reductions due to large diffusion of the technology were considered in three case studies. The economic model used was the simple Levelized Cost of Energy (sLCoE). Different values of Weighted Average Cost of Capital (WACC) were considered too. The results show LCoEs comparable to the ones expected for the sector in 2030. In 2060, even in the more pessimistic scenario, wind resource decreases will be abundantly compensated by expected cost reductions.
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Chrysafis, Konstantinos A., and Basil K. Papadopoulos. "Decision Making for Project Appraisal in Uncertain Environments: A Fuzzy-Possibilistic Approach of the Expanded NPV Method." Symmetry 13, no. 1 (December 25, 2020): 27. http://dx.doi.org/10.3390/sym13010027.
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The major drawback of the classic approaches for project appraisal is the lack of the possibility to handle change requests during the project’s life cycle. This fact incorporates the concept of uncertainty in the estimation of this investment’s worth. To resolve this issue, the authors use fuzzy numbers, possibilistic moments of fuzzy numbers and the hybrid (fuzzy statistic) fuzzy estimators’ method in order to introduce a fuzzy possibilistic version of the expanded net present value method (FPeNPV). This approach consists of two factors: the fuzzy possibilistic NPV and the fuzzy option premium. For the estimation of the fuzzy NPV, some basic assumptions are taken into consideration: (1) the opportunity cost of capital, used as the present value interest factor calculated through the weighted average cost of capital (WACC), (2) the equity cost, determined through the possibilistic set-up of the capital asset pricing model CAPM, and (3) the inflation factor, also included in the estimation of the NPV. The fuzzy estimators’ method is used for the computation of the fuzzy option premium. An algorithm of nine major steps leads to the computation of the FPeNPV. This gives the administration the opportunity to adapt to potential changes in the company’s internal and external environments. In this way, the symmetry between the planning and execution phase of a project can be reinstated. The results validate the statement that fuzzy and intelligent methods remain valuable tools to express uncertainty in various scientific areas. Finally, an illustrative example aims at a thorough comprehension of this new approach of the expanded NPV method.
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Sulthoni, Noor Achyar, and Anas Lutfi. "Analisis Kelayakan Pengembangan Proyek Apartemen Citralake Suites - Citra Garden City." Jurnal Manajemen Bisnis dan Kewirausahaan 4, no. 2 (March 14, 2020): 16. http://dx.doi.org/10.24912/jmbk.v4i2.7514.
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The population density in the capital has increased from year to years, this situation used by PT CD as a business tool in the property sector. A kind of research is needed to find out whether the development of this land is profitable or not, by conducting a Business Feasibility Analysis. Investment decision analysis is done by using 3 (three) main calculation methods. From the results of research conducted by the author, it is obtained as follows in :In the payback period, sales are up to 2018, reaching 60%, so this project is feasible to be acceptedNet Present Value Analysis, From the results of calculations, NPV cash inflow is still far greater than the NPV cash outflow means that according to the NPV assessment that this project is considered very feasible to be carried outThe Internal Rate of Return (IRR) is a feasible project because the IRR is a normal and optimistic alternative. greater than the Weighted average cost of capital (WACC)Based on the results of the analysis and calculations carried out by the author in relation to project, the general investment investment is considered very feasible and beneficial not only to the developer but also consumers who buy apartment units on the project. Paying attention to what has been analyzed and discussed, the author's suggestion is to re-check cashflow by considering finding alternative funding with an improved loan. so that the cost of capital is small and profits increase.
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Karminsky, A., and E. Frolova. "Methods of Bank Valuation in the Age of Globalization." MGIMO Review of International Relations, no. 3(42) (June 28, 2015): 173–83. http://dx.doi.org/10.24833/2071-8160-2015-3-42-173-183.
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This paper reviews the theory ofvalue-based management at the commercial bank and the main valuation methods in the age of globalization. The paper identifies five main factors that significantly influence valuation models selection and building: funding, liquidity, risks, exogenous factors and the capital cushion. It is shown that valuation models can be classified depending on underlying cash flows. Particular attention is paid to models based on potentially available cash flows (Discounted cash flow-oriented approaches, DCF) and models based on residual income flows (Residual income-oriented approaches). In addition, we consider an alternative approach based on comparison with same sector banks (based on multiples). For bank valuation equity discounted сash flow method is recommended (Equity DCF). Equity DCF values equity value of a bank directly by discounting cash flows to equity at the cost of equity (Capital Asset Pricing Model, CAPM), rather than at the weighted average cost of capital (WACC). For the purposes of operational management residual income-oriented approaches are recommended for use, because they are better aligned with the process of internal planning and forecasting in banks. For strategic management residual income-oriented methods most useful when expected cash flows are negative throughout the forecast period. Discounted сash flow-oriented approaches are preferable when expected cash flows have positive values and needs for models using is motivated by supporting the investment decisions. Proposed classification can be developed in interests of bank management tasks in the midterm in the age of globalization.
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Mari, Carlo, and Marcella Marra. "Valuing firm’s financial flexibility under default risk and bankruptcy costs: a WACC based approach." International Journal of Managerial Finance 15, no. 5 (June 21, 2019): 688–99. http://dx.doi.org/10.1108/ijmf-05-2018-0151.
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PurposeThe purpose of this paper is to present a model to value leveraged firms in the presence of default risk and bankruptcy costs under a flexible firm’s debt structure.Design/methodology/approachThe authors assume that the total debt of the firm is a combination of two debt components. The first component is an active debt component which is assumed to be proportional to the firm’s value. The second one is a passive predetermined risk-free debt component. The combination of the two debt categories makes the firm’s capital structure more realistic and allows us to include flexibility into the firm’s debt structure management. The firm’s valuation is performed using the discounted cash flow technique based on the weighted average cost of capital (WACC) method.FindingsThe model can be used to define active debt management strategies that can induce the firm to deviate from its capital structure target in order to preserve debt capacity for future funding needs. The firm’s valuation is performed by using the WACC method and a closed form valuation formula is provided. Such a formula can be used to value costs and benefits of financial flexibility.Research limitations/implicationsThe proposed approach provides a good compromise between mathematical complexity and model capability of interpreting the various economic and financial aspects involved in the firm’s debt structure puzzle.Practical implicationsThis model offers a realistic approach to practical applications where real financing decisions are characterized by a simultaneous use of these two debt categories. By comparing costs and benefits deriving from using unused debt capacity for future funding needs, the model provides a quantitative support to investigate if financial flexibility can add value to firms.Originality/valueTo the authors knowledge, the approach the authors propose is the first attempt to build a valuation scheme that accounts for firm’s financial flexibility under default risky debt and bankruptcy costs. Including financial flexibility, this model fills an important gap in the literature on this topic.