VALUATION AND CAPITAL

BUDGETING FOR LEVERED

FIRM

Kelompok II
Reynaldo
Erfan Adrianto
Rachma Aprilia
Yogi Jaya Perkasa
 Metode Pendekatan

Adjusted Present Value (APV)

approach
Flow to Equity (FTE) approach
Weighted Average Cost Of Capital
(WACC) approach
 Adjusted Present Value
(APV) Approach
The value of project to a levered
firm (APV) is equal to the value of the
project to an unlevered firm (NPV)
plus the net present value of
financing side effect (NPVF)

APV = NPV + NPVF

 Financing Side Effect
Name Description Effect to Value Firm

The Tax Subsidy To Kenaikan Interest Menaikkan Nilai

Debt Expense akan Perusahaan
menurunkan pajak
yang harus dibayar.
The Cost of Issuing Flotation Cost, Menurunkan Nilai
New Securities underwriting discount, Perusahaan
direct expense ,
inderect expense,
abnormal return etc
The Cost of Financing Cost associated with Menurunkan nilai
Distress Bankruptcy perusahaan

Subsidies to Debt Government giving Menaikkan Nilai

Financing tax-exempt rate wich perusahaan
is lower than taxable
debt rate to firm
Present Value of The Tax Shield
Interest = Rb x B...............(1)
Pengurang terhadap pajak perusahaan =
tc x Rb x B...................(2)
Assuming the cash flow are perpetual, the present
value of the tax shield is
tc x Rb x B = tc x B........(3)
Rb
Jika kita masukkan rumus diatas dalam persamaan
APV maka :
APV = NPV + NPVF
= NPV + ( tc x B )...........(4)
 Example
P.B Singer Co project have the following
characteristic :
Cash inflow : $ 500.000 per year for undifinite future
Cash Cost : 72 % of sales
Initial investement : $ 475.000
Tax : 34 %
Ro = 20 %, where Ro is the cost of capital for project
of an all-equity firm
Proyek ini akan dibiayai dengan $ 126.229,5 utang
dan sisanya mengunakan modal perusahaan.
Berapa nilai projek tersebut ?
 Unlevered Cash Flow
Cash Inflow $ 500.000

Cash Cost $ -360.000

Operating Income $ 140.000

Corporate Tax $ -47.600

Unlevered cash Flow (UCF) $ 92.400

Nilai Present Value project = $ 92.400
0,20
= $ 462.000
Sehingga nilai NPV Projek = $ 462.000 - $ 475.000
= ($ 13.000)
Adjusted Present Value Projek = ($ 13.000) + ( 0,34
x $ 126.229,5)
= $ 29,918
 Flow to Equity (FTE)
approach
Discounting the cash flow from the
project to the equityholders of the
levered firm at the cost of equity
capital

For the perpuity this become :

cash flow from the project to the equityholders of the levered

firm
Rs
 Three Steps to The FTE
Approach

Step 1 : Calculiting Levered Cash Flow

(LCF)
Step 2 : Calculiting Rs
Step 3 : Valuation
 Example
P.B Singer Co project have the following
characteristic :
Cash inflow : $ 500.000 per year for undifinite future
Cash Cost : 72 % of sales
Initial investement : $ 475.000
Tax : 34 %
Ro = 20 %, where Ro is the cost of capital for project of
an all-equity firm
Projek ini akan dibiayai dengan utang sebanyak $
126.229,5 dengan Interest Rate 10 %.
Deb-to-equity ratio perusahaan adalah 1/3
Berapa nilai projek tersebut ?
Step 1 : Calculating Levered Cash Flow
(LCF) Levered Cash Flow
Cash inflows $ 500.000
Cash Cost $ -360.000
Interest $ -12.622,95
Income after interest $ 127.377,05
Corporate Tax $ -43.308,2
Levered Cash Flow (LCF) $ 84.068,85

Atau
UCF-LCF = (1 tc) x Rb x B
$ 92.400 - LCF = ( 1 0,34 ) x 0,1 x $
126.229,5
LCF = $ 92.400 - $ 8.331,15
= $ 84.068,85
Step 2 : Calculating Rs
Rs = Ro + B/S (1 tc ) (Ro - Rb)
= 0,2 + (1/3) (1 0,34) (0,2 0,1)
= 0,222

Step 3 : Valuation
Present Value of Project :
LCF = $ 84.068,85 = $ 378.688,5
Rs 0,222
Net Present Value of project :
=($ 475.000 - $ 126.299,5) - $ 378.688,5
=$ 29.918
Weighted Average Cost of Capital (WACC) Approach

the cost of capital is a weighted

average of the cost of debt and the
cost of equity
Net present value of the project can be
written algebraically as :

If the project is a perpetuiy, the net

present value project is :
Berdasarkan soal latihan sebelumnya,
Hitung berapa nilai value perusahan :

Present value project adalah

Net present value project :

= $ 504.918 - $475.000
= $ 29.918
A Comparation of The APV, FTE and
WACC Aproach
Guidlines :
1. Use WACC or FTE if the firms target
debt-to-value ratio applies to the
project over its life
2. Use APV if the projects level of the
deb is known ofer the is know over
the life or the project
Valuation When Discount Rate Must
Be Estimated
Guideline:
- Gunakan data industri atau pesaing
 Example 18.1
WWE berencana memasuki bisnis widget dengan debt to
value rasio = 25%
Rb = 12 %
Data pesaing AW:
Rasio debt to equity = 40/60
equity = 1,5
Rb = 10%
Tc = 0,4
Risk premium 8,5%
Rm 8%
Ditanya: Berapa discount rate yang akan digunakan oleh
WWE? (R wacc)
 Lanjutan 18.1

Langkah 1: Menentukan cost of capital dari AW

Rs = 8% + 1,5 x 8,5% = 20,75%

Langkah 2: Menentukan all equity cost of capital

20,75% = Ro + 40/60 (1-0,4) (Ro-10%)

Ro = 0,1825
Langkah 3: Menentukan Rs untuk WWE

Rs = 18,25% + 25/75 (1-0,4)(18,25%-12% = 19,9%

Langkah 4: Menghitung R wacc

Rwacc = 25% x 10% x (1-0,4) + 75% x 19,9% = 16,425%

APV Example (with effect of
debt)
Example 18.2
Bicksler mempertimbangkan sebuah
proyek senilai $10.000.000, jangka
waktu 5 tahun, dengan penyusutan
garis lurus. Pendapatan setelah
dikurangi biaya kas sebesar
$3.500.000. Cost unlevered equity
20%. Pajak 34%
 Lanjutan 18.2
Langkah
1: Menentukan NPV project (all-
equity)
CF0 CF1 sampai
CF5
I0 ($10.000.000)
Tax shield dari
penyusutan $680.000
34% x $2.000.000
Revenue-expense
(1-34%) x $2.310.000
$3.500.000
NPV = -10.000.000 +
{(680.000+2.310.000) x } = $1.058.070
 Lanjutan 18.2

Langkah 2: Menentukan NPV flotation cost
Pinjaman setelah flotation cost (9%) $7.500.000
Jumlah kotor pinjaman = 7.500.000 x (100/90) =
$7.575.758
t0 t1 sampai t5
Flotation cost ($75.758)
Tax shield dari
penyusutan $5.152
34% x
(75.758/5)
NPV flotation cost = -75.758 + (5.152 x ) = -
$56.228
 Lanjutan 18.2

Langkah 3: Menentukan NPV pinjaman
t0 t1 sampai T5
t4
Loan $7.575.758
Interest after
tax ($500.000) ($500.000)
(1-34%) x 10% x
$7.575.758
Loan repayment ($7.575.758
)

NPV loan = 7.575.758 - (500.000 x ) - = $976.415

APV = NPV all equity + debt effect = 1.058.070 + 56.228 +
976.415 = -$25.427
 Beta dan Leverage

 Example 18.3
proyek scale-enhancing, maka perhitungan
Jika
dapat menggunakan equity perusahaan
B = $100 million, riskless
S = $200 million
Tax 34%
firm equity = 2
Rf = 10%
Risk premium = 8,5%
Berapa discount rate proyek jika dibiayai oleh equity?
u = x equity = x 2 = 1,5
Rs = Rf + x (Rm-Rf) = 10% + 1,5 x 8,5% = 8,5%
 Example 18.4
Jika proyek bukan merupakan scale enhancing, maka perhitungan dapat

menggunakan equity
Industri
Initial investment $1 million
UCF after tax $300.000/year, perpetuity
Debt to value rasio 0,5
Data pesaing dalam industri yang sama = 1,2;1,3;1,4
Tax 34%
Rf = 5%
Risk premium = 9%
Berapakah NPV proyek?
u = rata2 industri = (1,2 + 1,3 + 1,4)/3 = 1,3
equity = (1+) u = (1+ x 1,3 = 2,16
Rs = Rf + x (Rm-Rf) = 5% + 2,16 x 9% = 24,4%
Rwacc = 0,5 x (1-34%) x 5% + 0,5 x 24,4% = 13,9%
NPV proyek = -1.000.000 + (300.000/13,9%) = $1,16 million