scholarly journals The implied cost of capital of government’s claim and the present value of tax shields: A numerical example

2014 ◽  
Vol 3 (1) ◽  
pp. 40
Author(s):  
M. B.J. Schauten ◽  
B. Tans
Keyword(s):  
Discount Rate ◽  
Cost Of Capital ◽  
Present Value ◽  
Numerical Example ◽  
Implied Cost Of Capital ◽  
Tax Shields ◽  
The Difference ◽  
The Cost

This paper provides a numerical example of how to calculate the cost of capital of government’s claim (rg) and the present value of tax shields. Schauten and Tans (2006) show for the models used in Myers (1974), Miles and Ezzell (1980) and Harris and Pringle (1985), that the present value of tax shields is equal to the difference between the present value of the expected taxes paid by the unlevered firm and the levered firm, with each of the models’ implied rg as discount rate. We discuss a numerical example using the valuation framework by Schauten and Tans (2006) and give a logic explanation for the low implied rgs of Miles and Ezzell’s and Harris and Pringle’s model.

scholarly journals Custo de Capital Quando os Dividendos são Dedutíveis

2011 ◽  
Vol 9 (3) ◽  
pp. 309 ◽  
Author(s):  
Ignacio Velez-Pareja ◽  
Julian Benavides Franco
Keyword(s):  
Cash Flow ◽  
Discount Rate ◽  
Cost Of Capital ◽  
Cost Of Debt ◽  
Cost Of Equity ◽  
Equity Value ◽  
Tax Shields ◽  
Tax Savings ◽  
The Cost ◽  
Optimal Leverage

Tax savings and the discount rate we use to calculate their value are involved in the calculation of cost of capital. Based on previous findings, we derive a general approach to cash flow valuation that take into account any kind of tax shields related to the financing decision of a firm and any date when they are earned. They can be used to introduce any type of externality that creates value through tax savings not captured by neither the cost of debt nor the cost of equity. This paper develops the formulations for the cost of capital when dividends, interest on equity or monetary correction of equity are deductible as it happens in Brazil. It shows that when properly done most known valuation methods are consistent and give identical results. Also, the paper argues that when dividends are tax deductible, optimal leverage is lower and equity value is higher.

B. ANALISA KELAYAKAN BISNIS PADA USAHA SWEETIN

2021 ◽  
Vol 4 (1) ◽  
pp. 11
Author(s):  
Vivi Indah Yani ◽  
Rachmat Mustofa Pratama ◽  
Izza Islami ◽  
Iman Supriadi
Keyword(s):  
Net Present Value ◽  
Cost Of Capital ◽  
Payback Period ◽  
Rate Of Return ◽  
Internal Rate Of Return ◽  
Present Value ◽  
Internal Rate ◽  
The Cost ◽  
Business Study

Abstrak Tujuan dari penelitian ini adalah untuk menganalisis dan mendeskripsikan studi kelayakan bisnis yang dilakukan pada Kewirausahaan “Sweetin” yaitu usaha yang baru dirintis di Surabaya dalam bidang makanan (dessert). Penelitian ini menggunakan metode Net Present Value (NPV), Internal Rate of Return (IRR) dan Payback Period (PP). Hasil yang diperoleh dalam penelitian ini yaitu nilai NPV sebesar Rp. 1.910.819 > dari nol. Nilai IRR sebesar 110% > dari cost of capital 10%. Dan PP 1 bulan. Hal ini berarti kewirausahaan Sweetin ini menunjukkan bahwa secara non-finansial dan finansial layak untuk dijalankan. Kata kunci: Kelayakan Usaha, Non-Finansial, Finansial Abstract             The purpose of this research is to analyze and describe the business study conducted on “Sweetin” Entrepreneurship, a business that has just been pioneered in Surabaya in the field of food (dessert). This study uses the method of Net Present Value (NPV), Internal Rate of Return (IRR) and Payback Period (PP). The results obtained in this study are the NPV value of Rp. 1,910,819> from zero. The IRR value is 110%> 10% of the cost of capital. And 1month PP. This means that Sweetin's entrepreneurship shows that it is non-financially and financially feasible to run. Keywords: Business Feasibility, Non-financial, Financial

scholarly journals An analysis of capital budgeting methods, the cost of capital and decision-makers in listed South African firms

2012 ◽  
Vol 9 (2) ◽  
pp. 519-529
Author(s):  
John H. Hall
Keyword(s):  
South African ◽  
Net Present Value ◽  
Cost Of Capital ◽  
Capital Budgeting ◽  
Decision Makers ◽  
Internal Rate Of Return ◽  
Present Value ◽  
The Cost ◽  
Academic Qualifications ◽  
A Company

This study’s purpose was to link the length of decision-makers’ employment in a firm and their academic qualifications to their choice of capital budgeting methods and of cost of capital techniques. The results show that the net present value (NPV) is more popular than the internal rate of return (IRR) as a capital budgeting technique. Also, irrespective of how long respondents have been employed by a company, they all use a discount rate. However, there is a significant tendency among respondents with postgraduate qualifications to prefer the NPV as a capital budgeting technique. Thus, in South Africa, academic qualifications do play a role in decision-makers’ capital budgeting practices.

scholarly journals Pengembangan Model Fuzzy Project Evaluation Untuk Analisis Kelayakan Finansial Pendirian Pabrik Baru

2015 ◽  
Vol 1 (1) ◽  
pp. 22
Author(s):  
Yuniar Farida
Keyword(s):  
Discount Rate ◽  
Fuzzy Number ◽  
Average Cost ◽  
Net Present Value ◽  
Cost Of Capital ◽  
Weighted Average ◽  
Project Evaluation ◽  
Triangular Fuzzy Number ◽  
Present Value

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

scholarly journals How to Determine the Cost of Capital for a Commercial Forestry

2022 ◽  
Vol 72 (1) ◽  
pp. 21-28
Author(s):  
Karlo Beljan ◽  
Denis Dolinar ◽  
Donald Hodges
Keyword(s):  
Risk Premium ◽  
Cost Of Capital ◽  
Stock Exchange ◽  
For Profit ◽  
Average Return ◽  
Risk Characteristics ◽  
Us Government ◽  
The Difference ◽  
Risk Free Rate ◽  
The Cost

Abstract This paper focuses on designing a methodological workflow to fill a knowledge gap for determining the cost of capital for commercial forestry projects. Upon reviewing the literature, a method to determine the cost of capital for profit-oriented forestry seems to be lacking. Accordingly, we selected and analyzed 42 companies that do businesses worldwide, are present on the stock exchange, and possess or lease forest land. Based on their business activities (growing forest, sawmilling, final production, paper production), these companies are classified into four subgroups. An algorithm has been devised using the concept of risk diversification and the capital asset pricing model for three groups of investors and four forestry subgroups. In doing so, the real risk-free rate (0.43%) is set as the difference between an average return on 10-year US government bonds (2.59% nominal) and the 10-year average US inflation rate (2.16%). The measure of forestry systematic risk (beta coefficient) varies between 0.83 and 1.41, while the equity (stock exchange market) risk premium is set to 6%. Unsystematic risk is determined using a process of mapping which takes into account all risk elements marked as relevant for the forestry sector. This approach provides results that reveal the cost of capital varying between 5.41% and 16.55% based on the current level of an investor's portfolio diversification and the risk characteristics of the forestry subgroup. Finally, the forestry companies meeting the investor's expectations are noted as preferable investment opportunities.

An investment analysis of developing a new oil well in the prevailing economic downturn in the petroleum sector of Nigerian economy

2021 ◽  
Vol 20 (1) ◽  
pp. 31-48
Author(s):  
J.I. Nwosu ◽  
A. Aliyu ◽  
D. Moses
Keyword(s):  
Net Present Value ◽  
Cost Of Capital ◽  
Oil Price ◽  
Oil Well ◽  
Investment Climate ◽  
Internal Rate Of Return ◽  
Present Value ◽  
Oil Sector ◽  
Petroleum Sector ◽  
The Cost

From 2017 to year 2020 (except for a gradual rise in 2018), the price per barrel of oil has been on the decline, thereby slowing down investment in the petroleum sector of Nigerian economy. This dwindling oil price creates an impelling need to investigate the viability or otherwise of investing in this sector. The net present value (NPV) and internal rate of return (IRR) are two major indicators used to assess the viability of investing in projects. In this paper the two indicators have been used to assess the viability of investing in the oil sector of Nigerian economy. Analysis shows that given the cost of drainage per barrel of oil at US$25, a 40% royalty payment, an overall 10% taxation on profit, and price per barrel of oil at US$40, the net present value of a new oil well will be negative while the cost of capital will be higher than return on investment. However the break-even point occurs at US$42 price per barrel, yielding an internal rate of return equal to cost of capital. The conclusion is that the investment climate of the Nigerian oil sector is currently gloomy. Our analysis also shows that the investment climate can be improved by applying a dynamic royalty system whereby the royalty payable tothe Federal Government is reduced when the oil price declines, and increased when the oil price rises.

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