Weighted Average Cost Of Capital Research Articles

Service-Based Periodic Payment Provided/PBBL by the Government of Indonesia to Bayung Lencir – Tempino – Simpang Ness Toll Road

In 2020, PT Hutama Karya (Persero), a state-owned enterprise mandated by the government to build the Trans Sumatra Toll Road, appointed a private consultant to conduct a feasibility study and for the proposed construction of the Betung – Tempino – Jambi Toll Road. However, due to the low traffic volume in the Jambi Province, the toll road was deemed financially not feasible to be developed. Given the substantial costs required for the development of the Betung – Tempino – Jambi Toll Road, this toll road segment was divided into several sections. Betung – Tempino – Jambi Toll Road is a segment of the primary route of the Trans Sumatra Toll Road, Phase 2, which spans 171 kilometers across the provinces of South Sumatra and Jambi. Bayung Lencir – Tempino – Simpang Ness Toll Road, which stretches 52 kilometers, is a part of the Betung – Tempino – Jambi Toll Road prioritized for construction and operation. According to Presidential Regulation of the Republic of Indonesia Number 131 of 2022, a funding scheme known as Service-Based Periodic Payments/Pembayaran Berkala Berbasis Layanan (PBBL) shall be provided to PT Hutama Karya (Persero) to enhance the financial feasibility and to ensure the funding, technical planning, construction execution, operation, and maintenance of the toll road. This study will analyze and evaluate the financial feasibility of the Bayung Lencir – Tempino – Simpang Ness Toll Road before and after the implementation of PBBL provided to PT Hutama Karya (Persero) during the estimated duration of toll road concession for 50 years. The duration of the PBBL granted by the Government of Indonesia to PT Hutama Karya (Persero) is 15 years, with an annual payment of 880 billion Rupiah. Based on the financial feasibility analysis without PBBL, the results indicate a negative NPV, an IRR lower than the Weighted Average Cost of Capital (WACC), a Discounted Payback Period exceeding the toll road concession period, and a Profitability Index below 1, indicating that the project is not yet financially viable. On the other hand, the financial feasibility analysis after PBBL implementation shows a positive NPV, an IRR greater than WACC, a Discounted Payback Period within the toll road concession period, and a Profitability Index above 1, indicating that the project is financially feasible. Therefore, PT Hutama Karya (Persero) shall develop the Bayung Lencir – Tempino – Simpang Ness Toll Road with PBBL scheme that contributed by the Government.

Financial Feasibility of A Hair Care-Based Business

Hair loss, or alopecia, is a global concern, with 3.8% of Southeast Asia's population affected by Alopecia Areata, an autoimmune disorder. Traditional treatments like minoxidil and finasteride, while effective, often have side effects. To address this, Sassle, a haircare startup, developed an almond-based hair serum in collaboration with ITB's School of Pharmacy, offering a natural solution without adverse effects. Sassle has completed product development and is preparing to launch its go-to-market strategy. This study evaluates the financial feasibility of Sassle's product using primary data from Sassle's records and secondary data from industry comparables. Key financial metrics such as the Payback Period, Net Present Value (NPV), and Internal Rate of Return (IRR) were analyzed, along with a scenario analysis under pessimistic, base, and optimistic conditions. The base scenario indicated a payback period of 3 years and five months, a positive NPV of Rp381,007,156, and an IRR of 49%, surpassing the Weighted Average Cost of Capital (WACC) of 5.02%. In the pessimistic scenario, with a 25% sales reduction, the payback period was four years and 11 months, with a positive NPV of Rp265,828,152 and an IRR of 32%. With a 15% sales increase, the optimistic scenario predicted a 2-year, 1-month payback period, a positive NPV of Rp622,915,633, and an IRR of 67%. The findings confirm that Sassle's business model is financially viable and capable of substantial returns, providing critical insights for strategic decisions in investment, market expansion, and operational scaling.

Stock Valuation of PT. Panca Budi Idaman, Tbk. (PBID) based on Free Cash Flow to the Firm and on Relative Valuation

The stock valuation of PT Panca Budi Idaman, Tbk. (PBID), an Indonesian plastic packaging manufacturer, is evaluated using the absolute and relative valuation. The absolute valuation is based on Discounted Cash Flow (DCF) method. In relative valuation, PBID is compared to its peers, which in this study are IPOL, PDPP, and TRST. Indonesia’s significant economic growth and the vital role of the plastic industry are noting strong demand for plastic packaging despite environmental challenges and regulatory pressures. Financial performance from 2017 to 2023 is assessed through profitability, liquidity, and solvency ratios, demonstrating PBID’s efficient operations and robust financial health. Future cash flows are projected, discounted using PBID’s Weighted Average Cost of Capital (WACC), and the terminal value is calculated. The intrinsic value is estimated at IDR 3,987 per share, indicating undervaluation compared to the current price of IDR 1,325 per share. Relative valuation compares PBID to industry peers using EV/EBITDA, P/E, and P/B ratios, reinforcing the undervaluation finding. Investment recommendations suggest PBID’s stock as a buying opportunity due to its strong market position and favourable valuation metrics.

Capital Structure and Risk Profile Comparison of Pharma Leaders

The pharmaceutical industry is in the spotlight nowadays. The financial situation of the pharmaceutical industry has experienced a lot of ups and downs due to the COVID-19. Therefore, analyzing the financial data of the pharmaceutical industry becomes significant. This report looks at three headline companies in the pharmaceuticals industry, Pfizer, Johnson & Johnson and Amgen. By analyzing and comparing their D/E ratio, weighted average cost of capital (WACC) and business risk, this report explores the reasons for the differences in the data of these three companies, forecasts the growth prospects of them and gives relevant advice to investors. The pharmaceutical industry is in the spotlight nowadays. The financial situation of the pharmaceutical industry has experienced a lot of ups and downs due to the COVID-19. Therefore, analyzing the financial data of the pharmaceutical industry becomes significant. This report looks at three headline companies in the pharmaceuticals industry, Pfizer, Johnson & Johnson and Amgen. By analyzing and comparing their D/E ratio, weighted average cost of capital (WACC) and business risk, this report explores the reasons for the differences in the data of these three companies, forecasts the growth prospects of them and gives relevant advice to investors. A basic result turn out to be that Investors should weigh the financial strategies of these companies against their individual risk tolerance and the dynamic landscape of the pharmaceutical industry before making investment decisions.

Financial Feasibility Analysis of XYZ Company Market Expansion Plan to Kalimantan

XYZ Company, a B2B manufacturer of Songkok in Gresik, East Java, plans to expand its market by establishing a new distribution warehouse in Banjarmasin, Kalimantan. This strategy aims to leverage the growing demand for Songkok in Kalimantan, which has a significant Muslim population. The primary goal of this study is to evaluate the financial feasibility of purchasing versus renting the new warehouse for this investment plan. The financial feasibility analysis was conducted in multiple stages. Pro forma financial statements were constructed for both scenarios, incorporating historical data of the company's financial statements, industry benchmarks, and growth assumptions from management interviews. Free Cash Flow to the Firm (FCFF) and terminal cash flows were calculated using the Weighted Average Cost of Capital (WACC). Capital budgeting techniques were then used to evaluate financial feasibility, including Net Present Value (NPV), Internal Rate of Return (IRR), and Discounted Payback Period. Risk assessment was performed through sensitivity analysis and Monte Carlo simulation. Results indicate that the renting scenario, with an initial investment of IDR 242 million, has a higher NPV and IRR than the purchase scenario, which requires an initial investment of IDR 944 million. The renting scenario also offers a faster-discounted payback period of 2 years and one month, making it more feasible. Risk assessment shows moderate risk, with an 83% probability of achieving a positive NPV. The financial feasibility analysis recommends renting the new warehouse in Banjarmasin. This option provides a quicker payback period, higher NPV and IRR, and positive risk assessment results. Investing in this project will enhance XYZ Company's market presence in Kalimantan, cater to the growing demand for Songkok, and achieve sustainable growth and profitability.

Financial feasibility of business towards application-based business: a case study of Drykeun

Drykeun, an e-commerce startup established in 2022, focuses on the laundry industry in Indonesia. Drykeun aims to become the country's leading laundry service provider by utilizing technology, innovation, and exceptional customer service. Drykeun partners with existing laundries to ensure standardized quality control and deliver top-notch services to households and businesses across the nation. Its mission is to provide reliable, affordable, and high-quality services, making laundry day hassle-free for all people. However, facing low sales in the B2C sector, Drykeun plans to pivot to the B2B target market. To determine the viability of this shift, a feasibility analysis will be conducted. This quantitative study will utilize historical company data, as well as secondary data from literature reviews, journals, and books. The research will also assess the financial feasibility of the company's strategy using measures such as the payback period, net present value, and internal rate of return. The study results indicate that Drykeun is financially feasible with a payback period of 1.6 years, an NPV of Rp. 396,378,216, and an IRR of 82%, which is higher than the Weighted Average Cost of Capital (WACC) of 5.2%.

Quantification of Expected Return of Investment in Wood Processing Sectors in Slovakia

The study focuses on the selected aspects of investment measurement and management for the support of financial and economic decision-making of investors in wood-processing sectors. The aim of the study was to analyze the indicators for the structure and cost of capital of furniture and paper/forest branches in Slovakia, quantify the actual expected return on investment based on the selected methodology, and consequently find out the fundamental differences resulting from the specific conditions of given sectors. Methodologically, the study uses procedures for the weighted average cost of capital (WACC), capital asset pricing model (CAPM) for determining the cost of equity, and calculation of the beta coefficient considering the risk premium. The results of the study demonstrated a similar levered beta in both analyzed sectors (1.17 in furniture, 1.20 in paper/forest), but in each sector for a different reason. The expected rate of return is higher in furniture (7.84%) compared to paper/forest products at the level of 6.04%. The findings provide the possibility of comparing the required and expected rate of return on invested capital and making the appropriate long-term investment decisions.

Capital Budgeting Analysis of Broiler Farm Construction in Central Java

Indonesia, positioned as a prominent emerging market, draws its economic strength from a diverse mix of agriculture, manufacturing, and a thriving services sector. The nation’s strategic location, coupled with abundant resources and a youthful population, forms a resilient economic foundation that has contributed to its sustained growth. One notable sector that plays a pivotal role in meeting the country’s protein needs is the poultry industry. Chicken consumption has risen to 7.41 kilograms per capita yearly, indicating a substantial 9.23% increase from 2020. Against this backdrop of economic vibrancy and shifting consumption patterns, PT.XYZ, a key player in the poultry industry, is strategically positioning itself for expansion. Recognizing the immense potential within Indonesia’s dynamic poultry sector, PT.XYZ is planning to enhance its broiler meat production capabilities through the construction of new broiler chicken farm facilities. This research endeavours to provide PT.XYZ with a comprehensive feasibility analysis for the envisioned broiler chicken farm facilities. The proposed facilities are designed to produce a significant volume, with a capacity of up to 16.8 million chickens annually, equivalent to approximately 29,3 million kilograms of chicken meat per year. The construction timeline is strategically set for two years, spanning from September 2024 to October 2026. The research findings present a compelling case for the feasibility of PT.XYZ’s ambitious broiler farm construction project. Financial indicators reveal a positive Net Present Value, an Internal Rate of Return that exceeds the Weighted Average Cost of Capital (WACC), and a Payback Period of five years, aligning with the company’s strategic plans. These results underscore the financial viability and attractiveness of the proposed expansion.

A novel approach to calculate weighted average cost of capital (WACC) considering debt and firm's cash flow durations

AbstractThis paper presents a novel approach to calculate the weighted average cost of capital (WACC) but considering additional relevant variables to be applied to a specific cash flow, free cash flow to firm (FCFF), or capital cash flow (CCF), in order to value an asset. The analytical expressions deduced for this approach, one for each case, are based not only on the ratio debt to the value of the asset and the cost of debt and equity, as in the usual expression, but also includes the debt and firm's cash flow durations. The proposed novel approach to cost of capital has key advantages in comparison to the usual expression for WACC: It is an analytical expression that could be applied to whatever kind of debt or capital structure, not only perpetual debt or permanent capital structure. It is a single discount rate, and for its calculation, it is not necessary to recalculate financial factors involved, which makes easier its application. The additional financial variables involved, debt and firm's cash flow duration, allow to obtain better results for the right discount rate and for the value of an asset in the sense that the discount rate for the asset effectively will permit to reach the required level for the profitability for the investor and to cover the cost of debt.

Loblaw Companies Limiteds Basic Financial Analysis and Calculation Display

For a company, financial analysis can help the company analyze its financing, investment, risk management, comparison with competitors and other issues to help company decision-makers make correct decisions. For the financial market, financial analysis can help investors understand the basic characteristics, current situation and future prospects of their target investment companies and help improve social and economic stability and development. This article is mainly based on a financial analysis of the current state of Loblaw Companies Limited (hereinafter referred to as Loblaw) in 2023. The research purpose of this article is to conduct an in-depth study of Loblaw by explaining the meaning and conceptual relationship of data collection, calculations and results, so that the public can have a more comprehensive understanding of the companys financial status in 2023. This paper uses literature analysis and data analysis research methods to mainly explore Loblaws risks, financing costs, current capital plans and capital structure. The data analysis models used include linear regression model, dividend discount model (DDM), capital asset pricing model (CAPM), weighted average cost of capital (WACC), net present value model (NPV). The data used for calculation comes from authoritative websites such as Yahoo Finance, Bank of Canada, and Loblaws official website. The results of the study found that Loblaw has a dominant position in the Canadian retail market. Loblaw is one company that relies more on debt financing. Its financing costs are lower than the industry average. Its capital structure has been very stable in recent years. The market has full confidence in Loblaw.

Research on Capital Structure and Investment Value of Supermarket Industry

This paper focuses on researching the capital structure and investment value of the supermarket industry, specifically examining the impact of epidemiological events on value investment within this sector. The objective is to explore the factors that influence capital structure decisions and their implications for investment value. The analysis employs the Weighted Average Cost of Capital (WACC) method to evaluate the relationship between capital structure and investment performance in the context of the supermarket industry. The study aims to investigate the influence of epidemiological events, such as COVID-19, on the capital structure decisions of supermarket companies and their subsequent effects on investment value. The research considers factors such as the size and maturity of the companies, risk profiles, regulatory environments, and cost of capital considerations to assess their impact on capital structure choices. By utilizing the WACC method, A study of supermarket investment value and capital structure decisions is presented in this paper. The WACC approach allows for a comprehensive evaluation of the cost of debt and equity financing, incorporating factors such as interest rates, tax implications, and market conditions.

Research on Capital Structure and Investment Value of the Healthcare Industry

This paper makes an in-depth study of the US healthcare industry from both empirical and theoretical aspects of capital structure and investment value. By calculating the WACC (weighted average cost of capital) for three of the most representative public companies in the US healthcare industry (Johnson & Johnson, Pfizer, and UnitedHealth Group) and reviewing the literature, it is concluded that the company's business and capital flows have been affected due to the impact of the COVID-19 pandemic. At the same time, due to some differences in the main business and nature of the three companies, United Health Group found that it has the highest investment risk. Based on the analysis of the investment value and investment risk of Johnson & Johnson, Pfizer, and UnitedHealth Group, this paper provides more appropriate investment recommendations for investors with different preferences, to further understand the future development trend of the American medical industry.

Analysis of Four Capital Structure Theories and Financing Choice of Chinese-Listed Companies

Controlling the capital structure is crucial to the financial management of the business. Maximizing the company's worth requires finding the appropriate capital structure. In this study, the relationship between corporate capital structure and corporate value is further investigated using the weighted average cost of capital (WACC) and capital asset pricing model (CAPM) analyses of four capital structure theories, including M&Ms First and Second Theories, the Trade-off Theory and the Pecking Order Theory, which examine the reasons why listed businesses' financing sequence conflicts with western thinking and point out its uniqueness and policy recommendations based on the current situation of China's stock market.

Storm hardening and insuring energy systems in typhoon-prone regions: A techno-economic analysis of hybrid renewable energy systems in the Philippines’ Busuanga island cluster

Hybrid renewable energy systems (HRES) have emerged as a promising solution for delivering sustainable energy to off-grid communities. However, the vulnerability of specific regions to extreme weather events has raised concerns about the resilience of these systems. This study undertakes a techno-economic analysis to assess the impact and significance of incorporating storm hardening measures and insurance into an HRES designed for the Busuanga island cluster. Central to our study is introducing a novel cost metric, the probability-averaged levelized cost of electricity (LCOE), which adeptly captures the inherently probabilistic nature of climate-induced damages to HRES energy assets. This metric serves as the linchpin for comparing the economic viability of HRES configurations, considering both scenarios with and without storm hardening or insurance. Our findings unveil a clear trend: for a solar photovoltaic (PV) panel with an annual probability of damage at 1%, insurance emerges as a financially prudent choice, while storm hardening gains merit at a probability of 4%. The weighted average cost of capital (WACC) is pivotal in shaping investment decisions. HRES setups featuring non-hardened solar PV panels become more economically appealing than their insured or hardened counterparts under higher WACC conditions, under the condition that the solar PV panels can maintain functionality for 15 years without impairment. Our study demonstrates the importance of accounting for often overlooked factors such as storm hardening and insurance premiums for solar PV panels in climate-vulnerable areas, which are commonly disregarded in many techno-economic studies. Moreover, our findings and conclusions on the optimal balance between capital costs, insurance premiums, and storm-hardening markups can readily extend to other climate-vulnerable areas.

Leverage and the cost of capital for U.S. banks

We examine the relationship between leverage (the assets-to-equity ratio) and the weighted-average cost of capital (WACC) for an unbalanced panel of U.S. bank holding companies (BHCs) over the period spanning 1996 through 2019. We assess the extent to which changes in capital requirements affect the WACCs of these institutions and find significant differences across three, mutually exclusive asset-size classes of BHCs. In particular, the WACCs of small and medium-sized BHCs are found to be more sensitive to changes in capital requirements than the WACCs of large BHCs. For a hypothetical doubling of Tier-1 capital, we find that the largest BHCs saw their WACCs increase by 42 basis points, while the WACCS of small and medium-sized BHCs are estimated to have increased by 62 and 76 basis points, respectively. We attribute differences between these results to differences in the strength and scope of government guarantees and in the composition of BHCs’ assets and liabilities as reported on their balance sheets.

Tax Shields, the Weighted Average Cost of Capital, and the Appropriate Discount Rate for a Project with a Finite Useful Life

The standard formulas for calculating the value of a firm’s tax shield and its weighted average cost of capital (WACC) use the assumption that the underlying cash flows are perpetuities. Yet, most projects will have a finite useful life. Because the perpetuity approach will overstate the value of a finite-life project’s tax shield, this factor will pressure the perpetuity-formula WACC to be less than the finite-life WACC. However, a large portion of the value of a perpetual tax shield can be attributed to interest payments during the next 5, 10, or 25 years, making it possible for the perpetuity-formula WACC to be greater than the finite-life WACC. Using a series of numerical examples, this paper shows that the finite-life WACC can be either higher or lower than the perpetuity-formula WACC depending on the project’s useful life, the required return on the unlevered project, the firm’s capital structure, the cost of debt, the marginal tax rate, and the debt repayment pattern (e.g., coupon bonds or amortizing loans). The analysis in this article helps managers better understand the potential biases introduced into the capital budgeting process when using the perpetuity-formula WACC to evaluate projects with finite useful lives.

Aplikasi wedding planner dan analisis kelayakan guna meningkatkan income generating badan pengelola usaha Universitas Jambi

<span>Universitas Jambi as a State University with the status of a Public Service Entity (BLU) has two sources of income generating, namely those from academic services and non-academic services (academic support services). The implementation of academic support services is entrusted to the Business Management Agency (Badan Pengelola Usaha). BPU is tasked with carrying out the development of business units and optimizing the acquisition of university funding sources. Based on this task, BPU established the Weddy Feast business unit under the Commercialization and Services department. This research analyzes the business feasibility of wedding planner to increase income generating of the Business Management Agency. The conduct interviews and surveys some vendors in 43 types of business. The results show that the establishment of Weddy Feast able to optimize the potential of university assets involving 43 types of businesses and 15 of them can be managed by students in creating student entrepreneurs in the context of implementing Merdeka Belajar Kampus Merdeka (MBKM) program of the Ministry of Education, Culture, Research and Technology, which is strengthened by realizing the UNJA Smart platform with digital transformation elements in the real business world, in the form of making a weddy feast application. The Net Present Velue (NPV) of wedddy planner is positive, Rp.577.049.066,- and Internal Rate of Return (IRR) 156,12% hingher than weighted average cost of capital (WACC) 12%.</span>

Price Identification And Financial Feasibility Study of Hydroponic Agriculture Iot Solution Launch Project at PT XYZ

Since 2015, the Internet of Things technology has grown significantly, reaching over 400 million users by 2022 in Indonesia. Recognizing the potential, PT XYZ, an innovative Indonesian telecommunications company, intends to launch an IoT solution for hydroponic agriculture. The launch project requires an initial investment of around Rp 500 million. Given that amount, PT XYZ aims to determine the selling price using a value-based pricing strategy and assess the project's financial feasibility and risks before proceeding. Primary and secondary data will be utilized in this research to determine the customer's willingness to pay (WTP), Capital budgeting cash flow, which includes the hypothetical price of IoT, calculating the weighted average cost of capital (WACC), free cash flow to the firm (FCFF), and terminal value. The study used various capital budgeting techniques, such as net present value (NPV), profitability index, payback period, internal rate of return (IRR), and Excel's goal seek feature, to determine the IoT solution's pricing. A risk analysis using sensitivity and Monte Carlo simulations have conducted. The research finds that the present value of benefits, or WTP, for the IoT solution, is Rp 90,708,238. Considering PT XYZ's targeted internal rate of return of 20%, the determined selling price is Rp 20,120,408, which lies within the customer's WTP, making the project feasible. Capital budgeting techniques show a payback period of 4.08 years, an NPV of Rp 3,424,935,505, and a profitability index of 8.21 over five years, indicating positive outcomes. However, the sensitivity analysis reveals that a change in product price, cost of goods sold, and salary expenses will significantly impact the NPV, resulting in a 12.69% risk, with profitability remaining high at 87.31%. In conclusion, PT XYZ's hydroponic agriculture IoT solution launch project is considered feasible, considering potential risks and mitigation strategies.

Free Cash Flow and Market Value of Firm: The Mediation Effect of weighted average cost of Capital

Abstract
 This study tests the effect of capital costs on the relationship between free cash flow (FCF) and market value. The study selected twenty-six corporations that were listed on the Jordan securities market from 2010 to 2019. The FCF is an independent variable, cost of capital is a mediation variable (proxy of WACC), and market value added (proxy of firm’s value) is a dependent variable. Baron & Kenny's methodology and the Sobel-test were used to analyze the data of the four hypotheses, including the mediation effect of capital costs on FFC & MVA. Based on the Sobel test results, there is a partial mediation effect of the cost of capital between the free cash flow and the market value added of the firm, and the free cash flow is positively related to the market value added. Therefore, FCF has the capability to send positive signals to financial market participants about the firm's performance.
 Keywords: - Free Cash Flow (FCF), Weighted Average Cost of Capital (WACC), Market Value Added (MVA), Mmarket Value of Equity (MVE), Capital Asset Pricing Model (CAPM), Beta Coefficient (β). 

Optimal Capital Structure Analysis of PT Kencana Energi Lestari Tbk

In 2020, fossil fuels accounted for around 80% of the world's energy supply, but the 2022 global energy crisis highlighted their vulnerability and lack of sustainability, prompting a global shift towards renewable energy sources. Indonesia, recognizing its potential in renewable energy, has taken proactive steps to accelerate its transition, such as the issuance of Peraturan Presiden Nomor 112 Tahun 2022 to facilitate renewable energy development. PT Kencana Energi Lestari Tbk responded positively to the regulation and has allocated USD 30 million in 2023 to implement renewable energy strategies. They are also pursuing a USD 100 million renewable energy project in the Philippines. To fund its initiatives, PT Kencana Energi Lestari Tbk plans to use USD 9 million from internal cash reserves and obtain an additional USD 121 million from external financing sources. However, their current capital structure has a debt-to-equity ratio of 76.84%, which deviates significantly from the industry average of 35.92%, suggesting that it may not be optimal. This study employs the Weighted Average Cost of Capital (WACC) method to identify the most optimal capital structure that will maximize the company's value. The suggested capital structure consists of 34% debt and 66% equity, resulting in an optimal cost of capital of 12.2868%. To implement their renewable energy plan, PT Kencana Energi Lestari Tbk needs to secure a total funding of USD 23,947,572.54 through debt financing and USD 97,052,427.46 through equity financing.
 Keywords: optimal capital structure; renewable energy; financing plan