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Sampa Video Inc Case Study
Sampa Video Inc Case Study
Syndicate 2
Cindy Herin 29112511
Farradila Karnesia 29112527
Henny Zahrani 29112551
Muhammad Nurhadi W. 29112326
Nisa Nuril H. 29112467
Zelmi Ilham 29112532
History
• Sampa began as a small store in Harvard Square catering mostly to
students.
independent films.
Alternatives:
1. Fund a fixed amount of debt, which would be
either kept in perpetuity or paid down
gradually.
2. Adjust the amount of debt so as to maintain
a constant ratio of debt to firm value.
What we have to do ?
WACC
• Rate expected to be provided by a company on
average to all the security holders for financing its
assets.
The Step.....
Step. 1 Figuring out Free Cash Flows
APV Analysis
For WACC, we need to know what the target (long-term) debt-to-capital ratio for this
company is. Let’s assume that it is 32 percent. That is, in the long run, this company
expects to finance its projects with 32 percent debt and 68 percent equity.
rS 0,1834
After we find Cost of Debt Capital and Cost of equity capital, we can now
calculate WACC :
S B
WACC rS rB (1 Tc )
SB SB
WACC 0,68(0,1834) 0,32(0,068)(1 0,4)
WACC 0,137776
Step. 3 Figuring out a terminal value
Since we only have five years of cash flow, we need to put a value on all the cash
flows after Year Five. Given that the Year Five cash flow is 495 and we expect it to
grow at 5 percent a year, the value of all cash flows after Year Five can be
calculated with the Terminal Value formula of our choice (either APV or WACC).
APV Analysis Year 5 cash flow
grow at 5 %
= 495
FCF (1 g )
TY FCF
rA g
Cost of Capital =
15,8%
495(1 0,05)
TY FCF
0,158 0,05
TY FCF 4812,5
WACC Analysis
Year 5 cash flow
= 495 grow at 5 %
FCF (1 g )
TY FCF
rWACC g
WACC = 13,8%
495(1 0,05)
TY FCF
0,137776 0,05
TY FCF 5921,3
Figuring out the NPV of all the
Step. 4 cash flows
APV Analysis
PV 2728,485
PV 3561,2
For WACC, we are done with our calculation – the value of the company is $ 2.061.200
For APV, however since we’ve used unlevered numbers (numbers without debt
involved), we need to add the present value of the interest tax shields we get from debt
interest payments.
APV
WACC D/E 0.47
Initial
D/E 0,47
(constant) Debt Level 1.000.000
(constant)
E 1,85 rA 0,158
rE 0,183
NPVU 1.228.485
WACC 0,138
PV Tax 400.000
NPV 2.061.200 Shield
NPVL 1.628.485
Conclusion
• Based on our asumption data, NPV using
WACC method have better value than APV
method.
• In WACC the effect of assets and liabilities is
mixes up. Source of error is difficult to track
down
• WACC is not flexible : what if debt risky?
• If Company want to keep debt to equity ratio
constant as long as project time, WACC method is
more accurate because the risk is not change in
time.
• Using APV method, the value comes from is
easier to track down.
• More flexible, just add other effect as separate
term.
• If the company must change radically from
previous financing term, or make radically new
investment, APV method is more accurate.
Comparison...
WACC APV
• Calculated as a blend of the cost of • Separates the value of operations
debt and the cost of equity of the capital structure into: the
• focuses on a company's debt to value of the firm (not counting
value ratio (D/V) debt) and the benefits and costs of
• Calculate the discount rate for borrowing money
leveraged equity (reL) using CAPM • Calculate the discount rate for an
• Use this method when target of all-equity firm (reU).
debt-to-value ratio applied • Use this method when the debt
throughout the project life & debt level of the project is unknown
ratio is constant throughout the project life and the
• Limitation: its calculations are debt level is constant
bound to equity and debt financing • APV method is more handy when
and their calculated ratios. projects have side effects which
have other contributions on cost of
capital