scholarly journals Analysis of the structure and cost of capital in mining enterprises

2017 ◽  
Vol 33 (1) ◽  
pp. 77-92 ◽  
Author(s):  
Robert Ranosz
Keyword(s):  
Capital Structure ◽  
Cost Of Capital ◽  
Cost Of Debt ◽  
Cost Of Equity ◽  
Mining Company ◽  
Optimal Capital Structure ◽  
Mining Companies ◽  
Debt Capital ◽  
Capital Funding ◽  
The Cost

AbstractThis article focuses on the analysis of the structure and cost of capital in mining companies. Proper selection of appropriate levels of equity and debt capital funding of investment has a significant impact on its value. Thus, to maximize the value of the company, the capital structure of the company should be composed to minimize the weighted average cost of capital. T he objective of the article is to present the capital structure of selected Polish and world’s mining companies and estimate their cost of equity and debt capital. In the paper the optimal capital structure for the Polish mining company (KGHM SA) was also estimated. It was assumed that both Polish and world’s mining companies, have no debt exceeding 45% in the financing structure. For the most of analyzed cases, the level of financing with debt capital is in the range between 10% and 35%. T he cost of equity exceeds the cost of debt capital and is in the range between 8% and 20%, while the cost of debt capital reaches the range between 1.9% and 12%. T he analysis of the optimal capital structure determining, performed for the selected mining company, showed that debt capital funding for the company should be in the range between 5.7% and 7.4%.

scholarly journals Cost of Capital Estimation for Highway Concessionaires in Chile

2018 ◽  
Vol 2018 ◽  
pp. 1-9 ◽  
Author(s):  
Cristian Vergara-Novoa ◽  
Juan Pedro Sepúlveda-Rojas ◽  
Miguel D. Alfaro ◽  
Nicolás Riveros
Keyword(s):  
Capital Structure ◽  
Stock Prices ◽  
Cost Of Capital ◽  
Weighted Average ◽  
Cost Of Debt ◽  
Capital Asset Pricing ◽  
Cost Of Equity ◽  
Asset Pricing Model ◽  
The Cost ◽  
The Capital Structure

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%.

scholarly journals Possibility of Applying Economic Value Added in the Capital Market of the Republic of Srpska / Mogućnost Primene Dodate Ekonomske Vrednosti Na Tržištu Kapitala U Republici Srpskoj

2013 ◽  
Vol 10 (2) ◽  
pp. 7-18
Author(s):  
Almir Alihodžić
Keyword(s):  
Cost Of Capital ◽  
Economic Value ◽  
Value Added ◽  
Cost Of Debt ◽  
Economic Value Added ◽  
Cost Of Equity ◽  
Market Index ◽  
Debt Capital ◽  
The Republic ◽  
The Cost

Abstract The efficiency of a management team primarily depends on the level of improvement of enterprise performances, i.e. whether its market value has increased or whether it creates value for shareholders. The accounting net profit can provide a partial answer to this question because it covers only one portion of the cost of capital, i.e. the cost of debt capital, while the price and cost of equity are disregarded. The method of the economic value added takes into account an average cost of capital, i.e. it calculates the total costs of borrowed capital and own capital. This paper explores the possibility to calculate economic value added for an individual share within the share market index of BIRS.

M&M Pizza

2017 ◽  
pp. 1-3
Author(s):  
Michael J. Schill
Keyword(s):  
Capital Structure ◽  
Corporate Finance ◽  
Cost Of Capital ◽  
Cost Of Debt ◽  
Financial Policy ◽  
First Year ◽  
Cost Of Equity ◽  
The Cost

This case is used in Darden's core first year finance course. The exercise introduces in a fun way the fundamentals of financial policy that are the foundation of corporate finance. It takes the textbook treatment of the Modigliani and Miller (M&M) principles and casts it in a case format. The case is accompanied by a teaching note for instructors and spreadsheets for both instructors and students. Moe Miller, the new managing director of M&M Pizza, is considering changing the company's capital structure to reduce the cost of capital. With the cost of debt at 4% and the cost of equity at 8%, adding a cheaper cost of funds through debt appears to be obvious. The case provides a simple framework for understanding the powerful intuition behind the foundational capital structure irrelevance propositions of Modigliani and Miller (1958). The case is written as an introductory experience in financial policy. Students are required to generate simple estimates of the cost of capital and estimate the value of debt and equity claims under various recapitalization scenarios. As the business is very simple and operates in a quasi-perfect market, the calculations require only that students are comfortable with the estimation of firm cost of capital.

scholarly journals Market value calculation and the solution of circularity between value and the weighted average cost of capital WACC

2009 ◽  
Vol 10 (6) ◽  
pp. 101-131 ◽  
Author(s):  
Ignacio Vélez-Pareja ◽  
Joseph Tham
Keyword(s):  
Average Cost ◽  
Cost Of Capital ◽  
Weighted Average ◽  
Cost Of Debt ◽  
Cost Of Equity ◽  
Tax Rate ◽  
Market Values ◽  
Equity Cost ◽  
Tax Payments ◽  
The Cost

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.

Are Banks Special?

2018 ◽  
Vol 08 (04) ◽  
pp. 1840004 ◽  
Author(s):  
Michel Crouhy ◽  
Dan Galai
Keyword(s):  
Capital Structure ◽  
Cost Of Capital ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Market Conditions ◽  
The Cost ◽  
The Capital Structure

This paper addresses the following question: Are banks special firms that can achieve their goals only with high leverage, above and beyond what is considered acceptable for industrial corporations? This question is related to the issue of the cost of capital and how it is affected by leverage. If we accept the Modigliani–Miller (M&M) theorem (1958), then the capital structure is irrelevant for both the cost of capital and the value of the bank. Specifically, the M&M hypothesis argues that higher levels of equity capital reduce bank leverage and risk, leading to an offsetting decline in banks’ cost of equity capital. Hence, we ask the question whether banks are special firms such that M&M theorem does not apply to banks. We show that M&M propositions cannot be applied for banks primarily because of explicit guarantees and subsidies that provide incentives for increasing leverage. Then, some of the risk faced by the bank is transferred at no cost to the providers of these guarantees and subsidies, giving banks the incentive to increase leverage as much as they can. We show that under perfect market conditions, when risk is fairly priced, this opportunity vanishes.

scholarly journals Leverage and the Cost of Capital: Some Tests Using Nepalese Data

2007 ◽  
Vol 3 (1) ◽  
pp. 85-91 ◽  
Author(s):  
Hari Bahadur Khadka
Keyword(s):  
Capital Structure ◽  
Capital Markets ◽  
Cost Of Capital ◽  
Traditional Approach ◽  
Cost Of Equity ◽  
Business Studies ◽  
Interest Charge ◽  
The Cost ◽  
The Relationship ◽  
The Capital Structure

This paper is devoted to test the MM’s propositions about the relationship between leverage and cost of capital in the context of Nepalese capital markets. The main objective of the study is to determine whether the firms' overall cost of capital and cost of equity decline with the increasing use of leverage. The results showed a negative but insignificant beta value of the relationship between leverage and the overall cost of capital. Therefore the leverage may not be regarded as contributing variable to the cost of capital function for Nepalese firms. But finding contradicts with the traditional approach of the capital structure theories. It is further concluded that the cost of capital declines not only with leverage because of the tax deductibility feature of interest charge. The relationship between the cost of equity and leverage is also strongly negative. Besides leverage, the size, and D-P Ratio are other important variables that affect the cost of capital in Nepalese context.Journal of Nepalese Business Studies 2006/III/1 pp. 85-91

scholarly journals Optimization of the capital structure of an agricultural company in the Czech Republic

2022 ◽  
Vol 132 ◽  
pp. 01008
Author(s):  
Jaromír Vrbka ◽  
Eva Kalinová ◽  
Zuzana Dvořáková
Keyword(s):  
Czech Republic ◽  
Capital Structure ◽  
Cost Of Capital ◽  
Data Set ◽  
The Czech Republic ◽  
Agricultural Enterprises ◽  
Optimal Capital Structure ◽  
Optimal Interval ◽  
Line Chart ◽  
The Cost

The topic of optimizing capital structure is very important for a company to work efficiently and reliably. It is important for every company to optimize everything so that they have the highest possible efficiency. Entrepreneurs also try to make this optimization last them as long as possible. Therefore, the aim of this paper is to determine the optimal capital structure of an agricultural company operating in the Czech Republic. The base source of data is the closing data of individual agricultural companies from the Albertina database of Bisnode. More than 9,000 agricultural enterprises operating in the given sector of the national economy in the Czech Republic are recorded in this data set. The calculation of the WACC method and the level of debt of individual agricultural companies are used. Subsequently, the equation for calculating the cost of capital is determined using power regression. Here we also obtain the value of reliability, which in this particular case is not ideal, but still reasonable. A line chart is used to determine the optimal interval for the agricultural company. The optimal debt interval comes out to 20 to 25%, at which the cost of capital is declared to be from 22 to 24%. If agricultural companies had higher or lower debt ratios, it would be inefficient for the enterprise.

scholarly journals CAPITAL STRUCTURE ANALYSIS TO OPTIMIZE THE PROFITABILITY OF MSMES (CASE STUDY ON MSMES HIKMAH IN SIDOARJO, EAST JAVA, INDONESIA)

2019 ◽  
Vol 1 (2) ◽  
pp. 241-250
Author(s):  
Danur Ramadhani ◽  
Agus Sukoco ◽  
Joko Suyono
Keyword(s):  
Capital Structure ◽  
Cost Of Capital ◽  
Weighted Average ◽  
Financial Statements ◽  
Business Owners ◽  
Optimal Capital Structure ◽  
Descriptive Research ◽  
The Cost ◽  
The Capital Structure

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.

Impact of the cost of capital on the financing decisions of Brazilian companies

2015 ◽  
Vol 11 (3) ◽  
pp. 285-307 ◽  
Author(s):  
Tatiana Albanez
Keyword(s):  
Capital Structure ◽  
Cost Of Capital ◽  
Market Timing ◽  
Shareholder Wealth ◽  
Equity Capital ◽  
Cost Of Equity ◽  
Pecking Order ◽  
Content Type ◽  
Financing Decisions ◽  
The Cost

Purpose – The purpose of this paper is to examine the market timing behavior of listed Brazilian companies to verify the effects of the cost of capital on their financing decisions, and hence on their capital structure. Design/methodology/approach – The relation between the cost of capital (debt and equity capital) and the leverage of firms in the period from 2000 to 2011 is analyzed by means of regression models with panel data. For this purpose, different proxies are used for the cost of equity and debt capital. Findings – The results provide strong evidence that Brazilian firms take advantage of windows of opportunity to obtain financing, and that when the cost of equity capital is high, firms appear to follow a pecking order, giving preference to debt financing. However, the decision is based on the cost of alternative sources of funding rather than just on the hierarchy established by the pecking order theory, due to the information asymmetry between market agents. Originality/value – Few studies of the Brazilian capital market have analyzed firms’ capital structure under the market timing approach, and none have addressed the same aspects analyzed here. Therefore, this paper will be useful to different users of accounting information by indicating the factors that influence the capital structure of Brazilian firms, allowing a better analysis of whether these firms act to maximize the generation of shareholder wealth.

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