TATA TERTIB REVIEW MKL

TATA TERTIB REVIEW MKL

1.      Peserta review adalah mahasiswa yang telah mendaftar untuk mengikuti review praktikum MKL.

2.      Peserta review wajib datang tepat waktu sesuai dengan jadwal yang tertera pada saat mendaftar praktikum. Tidak diperkenankan untuk terlambat lebih dari 10 menit!

3.      Review akan berlangsung selama 120 menit.

4.      Peserta review wajib mengenakan pakaian rapih dan sepatu tertutup. Tidak diperkenankan mengenakan T-shirt ataupun polo-shirt.

5.      Peserta review wajib membawa alat tulis dan kalkulator masing-masing. Tidak diperkenankan pinjam meminjam alat tulis dan kalkulator selama review berlangsung.

6.      Review bersifat close book. Tidak diperkenankan membuka buku, catatan, ataupun jawaban praktikum. Untuk financial table akan disediakan oleh tim asisten.

7.      Materi review mencakup:

è Leverage & Capital Structure

è Dividend Policy

è Capital Budgeting

è Leasing, Merger & Acquisition

8.      Bagi peserta yang melanggar tidak diperkenankan mengikuti review MKL.

Selamat Belajar and Good Luck!

Leasing and Merger

LEASING

BRIEF CONCEPT

Leasing enables the firm to obtain the use of certain fixed assets of which it must make a series contractual, periodic, tax deductible payments.

Lessee : the receiver of the services of the assets under the lease contract

Lessor : is the owner of the assets.

Type of leases :

1.         Operating lease

·         An operating lease is a cancelable contractual arrangement whereby the lessee agrees to make periodic payments to the lessor, often for 5 or fewer years, to obtain an assets services.

·         Generally, the total payments over the term of the lease are less than the lessor’s initial cost of the leased asset.

·         If the operating lease is held to maturity, the lessee returns the leased asset over to the lessor, who may lease it again or sell the asset.

2.         Financial or capital leases

·         A financial lease is a longer-term lease than an operating lease.

·         Financial leases are non-cancelable and obligate the lessee to make payments for the use of an asset over a predefined period of time.

·         The total payments over the term of the lease are greater than the lessor’s initial cost of the leased asset.

·         Financial leases are commonly used for leasing land, buildings, and large pieces of equipment.

Leasing agreements

•         A direct lease is a lease under which a lessor owns or acquires the assets that are leased to a given lessee.

•         A sale-leaseback arrangement is a lease under which the lessee sells an asset for cash to a prospective lessor and then leases back the same asset.

•         A leveraged lease is a lease under which the lessor acts as an equity participant, supplying about 20 percent of the cost of the asset with a lender supplying the balance.

•         Operating leases normally require maintenance clauses requiring the lessor to maintain the assets and to make insurance and tax payments.

•         Renewal options are provisions that grant the lessee the option to re-lease assets at the expiration of the lease.

•         Finally, purchase options are provisions frequently included in both operating and financial leases that allow the lessee to purchase the asset at maturity -- usually at a pre-specified price.

 Lease – versus- purchase decision

•         The lease-versus-buy decision is a common decision faced by firms considering the acquisition of a new asset.

•         This decision involves the application of capital budgeting techniques as does any other asset investment acquisition decision.

•         The preferred method is the calculation of NPV based on the incremental cash flows (lease versys buy) using the following steps:

STEP 1: Find the after-tax cash outflows for each year under the lease alternative.

STEP 2: Find the after-tax cash outflows for each year under the purchase alternative

STEP 3: Calculate the present value of the cash outflows from Step 1 and Step 2 using the after-tax cost of debt as the discount rate.

STEP 4: Choose the alternative with the lower present value of cash outflows.

MERGERS

§  Mergers occurs when two or more firms are combined and the resulting firm maintains the identity of one of the firms. The firm in a merger transcaction that attempts to accuire another firm is commonly called acquiring company. The firm that acquiring company is pursuing is preffered to as the target company.

§    Motives for merging :

ü  Growth or diversification

ü  Synergy

ü  Fund rising

ü  Increased managerial skill or technology

ü  Tax consideration

ü  Increased ownership liquidity

ü  Defense against takeover

§  Types of mergers :

•         The horizontal merger is a merger of two firms in the sale line of business.

•         A vertical merger is a merger in which a firm acquires a supplier or a customer.

•         A congeneric merger is a merger in which one firm acquires another firm that is in the same general industry but neither in the same line of business not a supplier or a customer.

•         Finally, a conglomerate merger is a merger combining firms in unrelated businesses.

 §  Stock swap transaction

v     Ratio of exchange : the ratio of amount paid per share of target company to the market per share of acquiring firm.

Ratio of exchange = amount paid per share of target company

                             market price per share of the acquiring company

v     Effect on earning per share

Acquiring company and target company financial data before merger

items	Acquiring firm	Target firm
Earnings available for common stock	a	f
Number of shares of common stock outstanding	b	g
Earnings per share	c (a/b)	h(f/g)
Market price per share	d	i
Price/earnings (P/E) ratio [4/3]	e (d/c)	j(i/h)

Effects on EPS of merger firms

stockholders	Earnings per share
	Before merge	After merge
Acquiring firm	a/b	a+f b+(ratio of exchange * g)
Target firm	f/g	a+f        x ratio of exchange                   b+(ratio of exchange * g)

v     Effect on market price per share

MPR = MP acquiring * RE

                                     MP target

MPR = market price ratio of exchange

MP acquiring = market price per share of the acquiring company

MP target = market price per share of target company

RE = ratio of exchange

Capital Budgeting

CAPITAL BUDGETING

BRIEF CONCEPT

Capital budgeting is the process of evaluation and selecting long-term investments that a consistent with the firm’s goal of maximing owner wealth.

Key motives for Making Capital Expenditures

Motive	Description
Expansion	Usually through acquisition of fixed assets
Replacement or renewal	The firm will made to increase efficiency by replacing or renewing obsolute or worn-out assets.
Other purposes	The firm involve a long term commitment of funds in expectation of a future return. These expenditures include outlays for advertising campaigns, research and development, management consulting, and new products.

Basic terminology

Type of project :

·      Mutually exclusive, are investment that a firm can select one or another but no both.

·      Independent, are investment that a firm can select one, or the other, or both – as long as they meet minimum profitability thresholds. The acceptance of one doesn’t eliminate the other from further consideration.

The availability of funds for capital expenditure :

·      Unlimited funds, the financial situation in which a firm is able to accept all independents project that provide an acceptable return.

·      Capital rationing, restrictios since they only have a given amount of funds to invest in potential investment projects at any given time.

Decision Practices Approaches :

·      Accept/Reject, the evaluation of capital expenditure proposals to determine whether the meet the firm’s minimum acceptabce criterion.

·      Ranking, the ranking of capital expenditure projects on the basis of some predetermined measure such as rate of return. 

Capital Budgeting Cash Flows

Relevant cash flows : Expansion versus Replacement Cash Flows.

a.       Initial Investment

The Basic Format for Determining Initial Investment

Installed cost of proposed asset =

Cost of proposed asset           

            + Installation costs                 

            Total installed cost-proposed             

-After tax proceed from sale of old asset =

Proceed from sale of old asset           

±Tax on sale of old asset        

Total after tax proceed-old                

±Change in net working capital                                          

Initial investment                                                                             

Notes :

±Tax on sale of old asset è (Proceeds from sale of old asset – Book Value) x %tax

Book Value = installed cost of asset – accumulated depreciation

±Change in net working capital è current asset – current liabilities

Basic Tax Rules :

Tax Treatment on Sales of Asset

Form taxable income	Definition	Tax Treatment	Assumed tax rate
Gain on sale of asset	Portion of the sale price that is greater than book value.	All gains above book value are taxed as ordinary income.	40%
Loss on sale of asset	Amount by which sale price is less than book value	If the asset is depreciable and used savings in business, loss is deducted from ordinary income.	40% of loss is a tax savings.
			If the asset is not 40% of loss is a tax depreciable or is not savings used in business, loss is deductable only against capital gains.

1. 
   

   1. 
      
   
   

   1. 
      
    Operating Cash Inflows

Calculation of Operating Cash Inflows Using the Income Statement format

Revenue

-          Expenses(excluding depreciation & interest)

EBDIT

-          Depreciation

EBIT

-          Taxes (rate=T)

NOPAT

+            Depreciation

Operating cash inflows (same as OCF)

1. 
   

a.       Terminal Cash Flow

The Basic Format for Determining Terminal Cash Flow After tax proceed from sale of proposed asset =     

Procceeds from sale of proposed asset             

±Tax on sale of proposed asset           

Total after tax proceeds-proposed                                          

-After tax proceed from sale of old machine =

Proceeds from sale of old machine                 

±Tax on sale of old machine                          

Total after tax proceeds-old                                        

±Change in net working capital                                                        

Terminal Cash flow    

Capital Budgeting Techniques 

Risk & Refinements in Capital Budgeting

Scenario analysis is a behavioral approach similar to sensitivity analysis but is broader in scope.

This method evaluates the impact on the firm’s return of simultaneous changes in a number of variables, such as cash inflows, outflows, and the cost of capital. NPV is then calculated under each different set of variable assumptions.

Simulation is a statistically-based behavioral approach that applies predetermined probability distributions and random numbers to estimate risky outcomes.

Risk-Adjusted Discount Rates

Risk-adjusted discount rates are rates of return that must be earned on given projects to compensate the firm’s owners adequately—that is, to maintain or improve the firm’s share price. The higher the risk of a project, the higher the RADR—and thus the lower a project’s NPV.

Using CAPM to find RADR

Capital Budgeting Refinements:
Comparing Projects With Unequal Lives

If projects are independent, comparing projects with unequal lives is not critical. But when unequal-lived projects are mutually exclusive, the impact of differing lives must be considered because they do not provide service over comparable time periods. This is particularly important when continuing service is needed from the projects  under consideration.

Annualized NPV (ANPV)

ANPV is an approach to evaluating un-equal lived projects that converts the net present value of unequal lived, mutually exclusive projects into an equivalent annual amount (in NPV terms)

Capital Rationing

Firm’s often operate under conditions of capital rationing—they have more acceptable independent projects than they can fund.

In theory, capital rationing should not exist—firms should accept all projects that have positive NPVs.

However, research has found that management internally imposes capital expenditure constraints to avoid what it deems to be “excessive” levels of new financing, particularly debt. Thus, the objective of capital rationing is to select the group of projects within the firm’s budget that provides the highest overall NPV or IRR.