Capital Structure
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A Simulation to Calculation Weighted Average Cost of Capital Market Value of Equity in Millions of Rupiah Tax rate Debt in the capital structure
B
C
30% 0%
0 1
Revenue COGS (45% of Revenue) Gross Profit OPEX (20% of Revenue) EBIT Interest Earning before taxes Taxes Earning after taxes Dividends
1,000,000 450,000 550,000 200,000 350,000 350,000 104,983 245,018 245,018
Total payments to security holders
245,018
Required return on debt (RROD) Required return on equity (RROE) Market value of debt Market value of equity Market value of the firm
8.00% 12.00% 2,041,813 2,041,813
Book value of debt Book value of equity Book value of the firm
500,000 500,000
Return on total capital Return on equity
70.00% 49.00%
Number of shares outstanding Price per share Earnings per share Price-earnings ratio
5,000 408.36 49.00 8.33
Book value debt ratio Market value debt ratio
0 0.2
0.00% 0.00%
Weighted average cost of capital Free cash flow Market value of the firm
12.00% 350,000 2,916,667
Note The number of shares and price per share are computed from the following considerations. Assume the change from 0% debt to any other amount of debt is accomplished by repurchasing shares with the borrowed funds. Then the price per share times the number of shares repurchased must equal the amount borrowed. Also, the price per share times the number of shares remaining must equal the market value of equity. Together, these imply that the price per share times 5.000.000.000 must equal the market value of the firm. This fact is used to compute the price per share and then the number of shares is found by dividing the market value of equity by the price per share.Assumpation for base case of RROD 08% (increase 0,25% per 10%) and RROE 12% (increase 0,50% per 10%)
Page 1
CALCUL OF WACC FOR DEBT IN
0%
Data from Exhibit 1 Market value debt ratio Cost of debt Cost of equity Tax rate
0.00% 8.00% 12.00% 30%
3 Weights
After-tax cost of debt Cost of equity WACC
8.00% 12.00%
0.00% 100.00%
Weighted Costs 0.00% 12.00% 12.00%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52
A Simulation to Calculation Weighted Average Cost of Capital Market Value of Equity Tax rate Debt in the capital structure Revenue COGS Gross Profit Operating Expenses EBIT Interest Earning before taxes Taxes Earning after taxes Dividends
B
C
D
E
F
G
30% 0% 342,857
10%
20%
30%
40%
50%
20% Revenue 120,000 4,125 115,875 34,763 81,113 81,113
120,000 8,750 111,250 33,375 77,875 77,875
120,000 14,625 105,375 31,613 73,763 73,763
120,000 22,000 98,000 29,400 68,600 68,600
120,000 31,250 88,750 26,625 62,125 62,125
84,000
85,238
86,625
88,388
90,600
93,375
Required return on debt Required return on equity Market value of debt Market value of equity Market value of the firm
8.00% 12.00% 700,000 700,000
8.25% 12.50% 50,000 648,900 698,900
8.75% 13.00% 100,000 599,038 699,038
9.75% 13.50% 150,000 546,389 696,389
11.00% 14.50% 200,000 473,103 673,103
12.50% 16.00% 250,000 388,281 638,281
Book value of debt Book value of equity Book value of the firm
500,000 500,000
50,000 450,000 500,000
100,000 400,000 500,000
150,000 350,000 500,000
200,000 300,000 500,000
250,000 250,000 500,000
Return on total capital Return on equity
16.8% 16.8%
16.8% 18.0%
16.8% 19.5%
16.8% 21.1%
16.8% 22.9%
16.8% 24.9%
Number of shares outstanding Price per share Earnings per share Price-earnings ratio
5,000 140.0 16.80 8.33
4,642 139.8 17.47 8.00
4,285 139.8 18.18 7.69
3,923 139.3 18.80 7.41
3,514 134.6 19.52 6.90
3,042 127.7 20.43 6.25
0.0% 0.0%
10.0% 7.2%
20.0% 14.3%
30.0% 21.5%
40.0% 29.7%
50.0% 39.2%
12.000% 84,000 700,000
12.019% 84,000 698,900
12.017% 84,000 699,038
12.062% 84,000 696,389
12.480% 84,000 673,103
13.160% 84,000 638,281
Book value debt ratio Market value debt ratio Weighted average cost of capital Free cash flow Market value of the firm
Note 45% Revenue
120,000 120,000 36,000 84,000 84,000
Total payments to security holders
H
Note: Assume the change from 0% debt to any other amount of debt is accomplished by repurchasing shares with the borrowed funds. Then the price per share times the number of shares repurchased must equal the amount borrowed. Also, the price per share times the number of shares remaining must equal the market value of equity. Together, these imply that the price per share times 5000 must equal the market value of the firm. This fact is used to compute the price per share and then the number of shares is found by dividing the market value of equity by the price per share.
Page 3
I
A Simulation to Calculation Weighted Average Cost of Capital Market Value of Equity in Millions of Rupiah Tax rate Debt in the capital structure
B
C
30% 0%
0 1
Revenue COGS (45% of Revenue) Gross Profit OPEX (20% of Revenue) EBIT Interest Earning before taxes Taxes Earning after taxes Dividends
1,000,000 450,000 550,000 200,000 350,000 350,000 104,983 245,018 245,018
Total payments to security holders
245,018
Required return on debt (RROD) Required return on equity (RROE) Market value of debt Market value of equity Market value of the firm
8.00% 12.00% 2,041,813 2,041,813
Book value of debt Book value of equity Book value of the firm
500,000 500,000
Return on total capital Return on equity
70.00% 49.00%
Number of shares outstanding Price per share Earnings per share Price-earnings ratio
5,000 408.36 49.00 8.33
Book value debt ratio Market value debt ratio
0 0.2
0.00% 0.00%
Weighted average cost of capital Free cash flow Market value of the firm
12.00% 350,000 2,916,667
Note The number of shares and price per share are computed from the following considerations. Assume the change from 0% debt to any other amount of debt is accomplished by repurchasing shares with the borrowed funds. Then the price per share times the number of shares repurchased must equal the amount borrowed. Also, the price per share times the number of shares remaining must equal the market value of equity. Together, these imply that the price per share times 5.000.000.000 must equal the market value of the firm. This fact is used to compute the price per share and then the number of shares is found by dividing the market value of equity by the price per share.Assumpation for base case of RROD 08% (increase 0,25% per 10%) and RROE 12% (increase 0,50% per 10%)
Page 1
CALCUL OF WACC FOR DEBT IN
0%
Data from Exhibit 1 Market value debt ratio Cost of debt Cost of equity Tax rate
0.00% 8.00% 12.00% 30%
3 Weights
After-tax cost of debt Cost of equity WACC
8.00% 12.00%
0.00% 100.00%
Weighted Costs 0.00% 12.00% 12.00%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52
A Simulation to Calculation Weighted Average Cost of Capital Market Value of Equity Tax rate Debt in the capital structure Revenue COGS Gross Profit Operating Expenses EBIT Interest Earning before taxes Taxes Earning after taxes Dividends
B
C
D
E
F
G
30% 0% 342,857
10%
20%
30%
40%
50%
20% Revenue 120,000 4,125 115,875 34,763 81,113 81,113
120,000 8,750 111,250 33,375 77,875 77,875
120,000 14,625 105,375 31,613 73,763 73,763
120,000 22,000 98,000 29,400 68,600 68,600
120,000 31,250 88,750 26,625 62,125 62,125
84,000
85,238
86,625
88,388
90,600
93,375
Required return on debt Required return on equity Market value of debt Market value of equity Market value of the firm
8.00% 12.00% 700,000 700,000
8.25% 12.50% 50,000 648,900 698,900
8.75% 13.00% 100,000 599,038 699,038
9.75% 13.50% 150,000 546,389 696,389
11.00% 14.50% 200,000 473,103 673,103
12.50% 16.00% 250,000 388,281 638,281
Book value of debt Book value of equity Book value of the firm
500,000 500,000
50,000 450,000 500,000
100,000 400,000 500,000
150,000 350,000 500,000
200,000 300,000 500,000
250,000 250,000 500,000
Return on total capital Return on equity
16.8% 16.8%
16.8% 18.0%
16.8% 19.5%
16.8% 21.1%
16.8% 22.9%
16.8% 24.9%
Number of shares outstanding Price per share Earnings per share Price-earnings ratio
5,000 140.0 16.80 8.33
4,642 139.8 17.47 8.00
4,285 139.8 18.18 7.69
3,923 139.3 18.80 7.41
3,514 134.6 19.52 6.90
3,042 127.7 20.43 6.25
0.0% 0.0%
10.0% 7.2%
20.0% 14.3%
30.0% 21.5%
40.0% 29.7%
50.0% 39.2%
12.000% 84,000 700,000
12.019% 84,000 698,900
12.017% 84,000 699,038
12.062% 84,000 696,389
12.480% 84,000 673,103
13.160% 84,000 638,281
Book value debt ratio Market value debt ratio Weighted average cost of capital Free cash flow Market value of the firm
Note 45% Revenue
120,000 120,000 36,000 84,000 84,000
Total payments to security holders
H
Note: Assume the change from 0% debt to any other amount of debt is accomplished by repurchasing shares with the borrowed funds. Then the price per share times the number of shares repurchased must equal the amount borrowed. Also, the price per share times the number of shares remaining must equal the market value of equity. Together, these imply that the price per share times 5000 must equal the market value of the firm. This fact is used to compute the price per share and then the number of shares is found by dividing the market value of equity by the price per share.
Page 3
I
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