Lesson schedule:J0464/Business Feasibility Study
Year
: 2007
Version
: Revisi 3
meeting 19
capital expense
19
 items
▓ cost of capital
▓ Debt expense
▓ own capital
▓ share of Preferen and common share
▓ retained earning
▓ Capital mean expense deliberated
19
 Reading Book :
Husnam, Suad dan Suwarsono (2000), Studi Kelayakan
Bisnis, Edisi ke empat PP. AMP. YKPN., Yogyakarta.
bab.15. hal 239-262
Online Reading :
http://teachmefinance.com/costofcapital.html
http://www.ibbotson.com/content/cc_lvl1.asp
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 Cost Of Capital
Expenditure sources:
2.
1. Debt
Capital alone
Cost Of Debt
 Is expense which we account because we use the source of fund
coming from loan.
 Notation of debt expense = Kd.
 Debt expense after tax (K*d) =
K*d = Kd (1 – t); where t = tax
19
 Capital alone
can in form of :
 Share expense Preferen
– Is share giving production remain to, in the form of
share deviden of preferen to [all] his owners.
Deviden taken away from by net profit after
Iease.(don’t have character of tax deductilde)
– Notation of is expense of capital stock of preferen = Kp.
– Price sell share of preferen :
deviden
Po 
Kp
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 Capital alone
 Expense Common Share
use formula :
– Formula growth Gordon :
if the deviden every year same,
Ke = Expense Capital alone from common share of
D = Constant Deviden every year
Po = Price Share at the mome
If constant the seizeer profit proportion.
g = growth of deviden.
D1
Ke 
g
P0
D
Ke 
P0
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 Capital alone
 CAPM
Ke  Rf  Rm  Rf 
If capital expense alone considered leverage :
B
Ke  K * e  K * e  Kd 
S
Ke
K*e
B
S
Kd
= capital alone cost from company which use debt
= capital alone cost from company which not use debt
= debt market value
= debt market capital alone
= debt cost before tax
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 Capital alone
 retained earning expense.
– under arrest Expense needn't release the expense of
extra
– If Floatation Cost ever greater, progressively tend to
company for arrestdetain obtained profit as fund
source, but when emission expense there no, hence
retained earning expense is equal to capital cost of
new share emission.
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 capital expense flatten to flatten
to be deliberated (WACC)
One of the methods to link investment
decision with financial decision. The
method :
 To separate the cash stream because investment
decision and financial decision. Formula used is = profit
after tax + decrease + flower (1-tax)
 To count average capital (use the base after tax) which
is the multiplication of capital from each financial sources
with proportion of fund used.
19
 NPV ( Net Present Value)
 Function : to evaluate profitability investment
used with own capital or loan.
 Base Case NPV is NPV counted if project is
used with 100% own capital.
 NPV extra is because financial decision is
beneficial got by the project because of loan.
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 Adjusted Net Present Value
 As alternative the using of capital average is
weighed.
 to evaluate profitability investment used with
own capital or loan.
 Mechanism :
Adjusted NPV = Base Case NPV + NPV extra
because financial decision.
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 Cash stream and usage capital
cost
 Used cash flow :
 Cash enter cleanness = profit after tax +
decrease < if assumed the project of expense
with capital alone cost >
 Cash enter cleanness = profit after tax +
decrease + flower (1- Tax) < if assumed the
project of expense with loan capital
thank you,…
►see
you at meeting
20