FINANCIAL MANAGEMENT ASIGNMENT

EMBA B-40C
UNIVERSITAS GADJAH MADA

Nama : Fitriyanto
Kelas : Eks B 40C
NIM : 20/465247/PEK/26250
No reg : 40P20083
Mata Kuliah : Financial Management
Dosen : Dr. Fernando J. Sitohang, MBA
Chapter :Distribution to Shareholders: Dividends and Repurchases And
Capital Structure Decisions (KABEE 14, 15)

Assignment: Problems CH14: 14-4, 14-5, 14-9, CH15: 15-6, 15-8, 15-10

1. CH14: 14-4
A firm has 10 million shares outstanding with a market price of $20 per share. The firm has $25
million in extra cash (short-term investments) that it plans to use in a stock repurchase; the firm has
no other financial investments or any debt. What is the firm’s value of operations, and how many
shares will remain after the repurchase?

Jawab:
n0 = 10,000,000
P = $20
Extra cash = $25,000,000
n…..?

Vop = (n0 P) − Extra cash

= (10,000,000 x $20) − $25,000,000
= $175,000,000.
n = Vop / P = $175,000,000 / $20 = 8,750,000
maka firm’s value of operations adalah sebesar $175,000,000 dan jumlah saham yang tesisa
setelah dilakukakannya repurchased adalah 8,750,000 lembar saham

2. CH14: 14-5
Gamma Medical’s stock trades at $90 a share. The company is contemplating a 3-for-2 stock split.
Assuming the stock split will have no effect on the total market value of its equity, what will be the
company’s stock price following the stock split?
Jawab:
P0 = $90;
Split = 3 for 2;
P0 New = ?
P0 New = $90/(3/2) = $60.

Maka Harga saham setelah dilakukan stock split adalah $60.

3. CH14: 14-9
The Welch Company is considering three independent projects, each of which requires a $5 million
investment. The estimated internal rate of return (IRR) and cost of capital for these projects are as
follows:
Project H (high risk): Cost of capital = 16%; IRR = 20%
Project M (medium risk): Cost of capital = 12%; IRR = 10%
Project L (low risk): Cost of capital = 8%; IRR = 9%
Note that the projects’ cost of capital varies because the projects have different levels of risk. The
company’s optimal capital structure calls for 50% debt and 50% common equity. Welch expects to
have net income of $7,287,500. If Welch bases its dividends on the residual model (all distributions
are in the form of dividends), what will its payout ratio be?

Jawab:
Cost Of Capital adalah sebesar USD 10 Million, jumlah tersebut diperoleh dari jumlah required
investmen adalah USD 5 Million dan optimlal capital structurenya adalah 50% hutang dan 50%
common equity.

Deviden = Net Income – Needed Equity >> (all distributions are in the form of dividends)
Deviden = USD 7,287,500 – USD 5,000,000
Deviden = USD 2,287,500

Payout Ratio = USD 2,287,500/ USD 7,287,500 = 0.3139 = 31.39%.

Maka Deviden payout ratio adalah sebesar 31.39%

4. CH15: 15-6
Dye Trucking raised $150 million in new debt and used this to buy back stock. After the recap,
Dye’s stock price is $7.50. If Dye had 60 million shares of stock before the recap, how many shares
does it have after the recap?

Jawab:
𝜋𝑝𝑟𝑖𝑜𝑟 = 60
D = USD 150 Mio
P = USD 7.5
𝜋𝑝𝑜𝑠𝑡 … ?
𝐷𝑛𝑒𝑤 − 𝐷𝑜𝑙𝑑
𝜋𝑝𝑜𝑠𝑡 = 𝜋𝑝𝑟𝑖𝑜𝑟 − 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑟𝑒𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑑 = 𝜋𝑝𝑟𝑖𝑜𝑟 −
𝑃𝑝𝑟𝑖𝑜𝑟
𝐷
𝜋𝑝𝑜𝑠𝑡 = 𝜋𝑝𝑟𝑖𝑜𝑟 – = 60 – ($150/$7.5) = 60 – 20 = 40 million
𝑃
5. CH15: 15-8
The Rivoli Company has no debt outstanding, and its financial position is given by the following
data:
Assets (book = market) $3,000,000
EBIT $500,000
Cost of equity, rs 10%
Stock price, P0 $15
Shares outstanding, n0 200,000
Tax rate, T (federal-plus-state) 40%

The firm is considering selling bonds and simultaneously repurchasing some of its stock. If it moves
to a capital structure with 30% debt based on market values, its cost of equity, rs, will increase to
11% to reflect the increased risk. Bonds can be sold at a cost, rd, of 7%. Rivoli is a no-growth firm.
Hence, all its earnings are paid out as dividends. Earnings are expected to be constant over time.
a. What effect would this use of leverage have on the value of the firm?
b. What would be the price of Rivoli’s stock?
c. What happens to the firm’s earnings per share after the recapitalization?
d. The $500,000 EBIT given previously is actually the expected value from the
following probability distribution:
Probability EBIT
0.10 ($ 100,000)
0.20 200,000
0.40 500,000
0.20 800,000
0.10 1,100,000
Determine the times-interest-earned ratio for each probability. What is the probability of not
covering the interest payment at the 30% debt level?

Jawab:
a. What effect would this use of leverage have on the value of the firm?
Dijelaskan bahwa nilai buku asset sama dengan nilai pasar asset yakni $3,000,000. Dalam hal
ini nilai hutang adalah nol dan nilai shares adalah $15 dengan jumlah 200.000. sehingga dapat
dihitung sebagai berikut:
V = D + S = 0 + ($15)(200,000) = $3,000,000.

Cost Of Capital (original)

𝑊𝐴𝐶𝐶 = 𝑤𝑑 (1 − 𝑇)𝑟𝑑 + 𝑤𝑠 𝑟𝑠
𝑊𝐴𝐶𝐶 = 0 + 1.0 ∗ 10%
𝑊𝐴𝐶𝐶 = 10%

Cost Of Capital With financial leverage (wd=30%):

𝑊𝐴𝐶𝐶 = 0,7 (1 − 𝑇)𝑟𝑑 + 𝑤𝑠 𝑟𝑠

𝑊𝐴𝐶𝐶 = 𝑤𝑑 (1 − 0.4)7 % + 0,7 ∗ 11%
𝑊𝐴𝐶𝐶 = 8,96

∞
𝐹𝐶𝐹𝑡
𝑉𝑜𝑝𝑠 = ∑
(1 + 𝑊𝐴𝐶𝐶)𝑡
𝑡=1
 Karena nilai growth adalah nol, maka Free Cash Flow (FCF) sama dengan EBIT (1-T).
Sehingga value of operation adalah sebesar
𝐹𝐶𝐹
𝑉𝑜𝑝𝑠 =
𝑊𝐴𝐶𝐶
(𝐸𝐵𝐼𝑇)(1 − 𝑇)
𝑉𝑜𝑝𝑠 =
𝑊𝐴𝐶𝐶

(500.000)(1 − 40)
𝑉𝑜𝑝𝑠 =
0.0896
𝑉𝑜𝑝𝑠 = 𝑈𝑆𝐷 3.348.214.286
Dengan menambah financial laverage sebanyak 30% atau sebesar USD 900.000 dengan
penambahan hutang maka akan menaikkan nilai perusahaan dari USD 3.000.000 menjadi
USD 3.348.214.286

b. What would be the price of Rivoli’s stock?

• Menggunakan target 30% hutang pada struktur modal maka nilai dari hutang adalah
sebesar
D = Wd x V = 0,30 x (3.348.214.286) = USD 1,004,464.286

• Sedangkan nilai dari modal adalah:

S= V-D = 3.348.214.286 - 1,004,464.286 = $2,343,750

• Sehingga harga per lembar saham adalah :

P = (S + (D-D0))/n0
= ($2,343,750 +($1,004,464.286-0))/200.000
= $16.741

c. What happens to the firm’s earnings per share after the recapitalization?
X = (D – D0)/P = ($1,004,464.286-0)/ $16.741= 60.000.256 dibulatkan menjadi $60.000
Jumlah saham yang tersisa adalah:
n = 200.000 – 60.000 = 140.000

Pada posisi awal

EPS = NI/n0
= [(EBIT-Int.)(1-T)]/n0
= [ ($500,000 -0) (1-0,4)]/200.000
= $1.5
Dengan Laverage
EPS = NI/n0
= [(EBIT-Int.)(1-T)]/n0
= [($500,000 -0.07 (1,004,464.286)) (1-0,4)]/140.000
= [($500,000 -$70.312,5)) (1-0,4)]/140.000
= $257.812,5 / 140.000 = 1.842

Selisih EPS pada posisi awal atau initial position dan saat penambahan laverage adalah:
1.842–1.50 = $ 0.342, maka dapat disimpulkan bahwa dengan penambahan hutang akan
meningkatkan EPS $ 0.342
 d. The $500,000 EBIT given previously is actually the expected value from the following
probability Distribution, Determine the times-interest-earned ratio for each probability. What is
the probability of not covering the interest payment at the 30% debt level?
Presentase Hutang 30%, times-interest-earned (TIE) = EBIT/I = EBIT/70.312,5

I (interest) sudah dikalkulasi sebelumnya 7% x D = 7% x 1,004,464.286 = 70.312,5

Probability EBIT TIE

0.10 ($ 100,000) (1.42)
0.20 200,000 2,84
0.40 500,000 7,11
0.20 800,000 11,38
0.10 1,100,000 15,64

Pembayaran Bunga tidak ada tercover ketika nilai TIE adalah <1,0. Dan hal ini terjadi pada
probabilitas 0,1 atau 10%, untuk probabilitas diatas 10% semua nilai TIEnya >1,0 sehingga
pembayaran atas bunganya dapat dicover

6. CH15: 15-10
Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA
currently has $20 million in debt carrying a rate of 8%, and its stock price is $40 per share with 2
million shares outstanding. BEA is a zero-growth firm and pays out all of its earnings as dividends.
The firm’s EBIT is $14.933 million, and it faces a 40% federal-plus-state tax rate. The market risk
premium is 4%, and the risk-free rate is 6%. BEA is considering increasing its debt level to a capital
structure with 40% debt, based on market values, and repurchasing shares with the extra money
that it borrows. BEA will have to retire the old debt in order to issue new debt, and the rate on the
new debt will be 9%. BEA has a beta of 1.0.
a. What is BEA’s unlevered beta? Use market value D/S when unlevering.
b. What are BEA’s new beta and cost of equity if it has 40% debt?
c. What are BEA’s WACC and total value of the firm with 40% debt?

Jawab :
a. What is BEA’s unlevered beta? Use market value D/S when unlevering.
𝐷
𝛽𝐿 = 𝛽𝑈 [1 + (1 − 𝑇) ]
𝑆
𝐷
𝛽𝑢 = 𝛽𝑙 /[1 + (1 − 𝑇) ]
𝑆
0,4
𝛽𝑢 = 1/[1 + (1 − 0,4) ]
0.6
𝛽𝑢 = 𝟎, 𝟖𝟕𝟎

b. What are BEA’s new beta and cost of equity if it has 40% debt?
𝐷
𝛽𝐿 = 𝛽𝑈 [1 + (1 − 𝑇) ]
𝑆
0,4
𝛽𝐿 = 0.87[1 + (1 − 0,4) ]
0.6
0,4
𝛽𝐿 = 0.87[1,6 𝑥 ]
0.6

𝛽𝐿 = 𝟏. 𝟏𝟐𝟖
c. What are BEA’s WACC and total value of the firm with 40% debt?
rs = 6 + 1.128 (4) = 10.827

𝑊𝐴𝐶𝐶 = 𝑤𝑑 (1 − 𝑇)𝑟𝑑 + 𝑤𝑠 𝑟𝑠
𝑊𝐴𝐶𝐶 = 0.4(1 − 0,4)0,09 + 0,6 𝑥 10.827
𝑊𝐴𝐶𝐶 = 0.4 x 0,4 x 0,09 + 0,6 𝑥 10.827
𝑊𝐴𝐶𝐶 = 𝟖. 𝟔𝟖𝟑%

V = FCF/WACC
V = [EBIT x(1-T)]/WACC
V = (14.933)(1-0,4)/ 8.683%
V = $103.188 million