Monday, June 22, 2015

Weighted Average Cost of Capital (WACC)



The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. The WACC is commonly referred to as the firm’s cost of capital. Importantly, it is not dictated by management. Rather, it represents the minimum return that a company must earn on an existing asset base to satisfy its creditors, owners, and other providers of capital, or they will invest elsewhere.
Companies raise money from a number of sources:common stock, preferred stock, straight debt, convertible debt, exchangeable debt, warrants, options, pension liabilities, executive stock options, governmental subsidies, and so on. Different securities, which represent different sources of finance, are expected to generate different returns. The WACC is calculated taking into account the relative weights of each component of the capital structure. The more complex the company's capital structure, the more laborious it is to calculate the WACC.
Companies can use WACC to see if the investment projects available to them are worthwhile to undertake.
Basic formula for WACC :
WACC = ((E/V) * Re) + [((D/V) * Rd)*(1-T)]
E = Market value of the company's equity
D =
Market value of the company's debt
V = Total
Market Value of the company (E + D)
Re = Cost of Equity

Rd = Cost of Debt
T= Tax Rate

 
A company is typically financed using a combination of debt (bonds) and equity(stocks).  Because a company may receive more funding from one source than another, we calculate a weight average to find out how expensive it is for a company to raise the funds needed to buy buildings, equipment, and inventory.
Assume newly formed Corporation ABC needs to raise $1 million in capital so it can buy office buildings and the equipment needed to conduct its business. The company issues and sells 6,000 shares of stock at $100 each to raise the first $600,000. Because shareholders expect a return of 6% on their investment, the cost of equity is 6%.
Corporation ABC then sells 400 bonds for $1,000 each to raise the other $400,000 in capital. The people who bought those bonds expect a 5% return, so ABC's cost of debt is 5%.
Corporation ABC's total market value is now ($600,000 equity + $400,000 debt) = $1 million and its corporate tax rate is 35%. Now we have all the ingredients to calculate Corporation ABC's weighted average cost of capital (WACC).
WACC = (($600,000/$1,000,000) x .06) + [(($400,000/$1,000,000) x .05) * (1-0.35))] = 0.049 = 4.9%
Corporation ABC's weighted average cost of capital is 4.9%. 

This means for every $1 Corporation ABC raises from investors, it must pay its investors almost $0.05 in return.  It's important for a company to know its weighted average cost of capital as a way to gauge the expense of funding future projects. The lower a company's WACC, the cheaper it is for a company to fund new projects.
Reference : Wikipedia Encyclopedia,  investinganswers.com, investopedia.com

Monday, June 9, 2014

Jakarta : The Capital of Indonesia


 
Jakarta, officially known as the Special Capital Region of Jakarta (Indonesian : Daerah Khusus Ibu Kota Jakarta), is the capital and largest city of Indonesia, and one of the most populous urban agglomerations in the world. Located on the northwest coast of Java, Jakarta is the country's economic, cultural and political centre, and with a population of 9,761,407 as of December 2012, it is the most populous city in Indonesia and in Southeast Asia. The official metropolitan area, known as Jabodetabek (a name formed by combining the initial syllables of Jakarta, Bogor, Depok, Tangerang and Bekasi), is the second largest in the world, yet the metropolis's suburbs still continue beyond it. The metropolitan has an area of 4,383.53 square kilometres (1,692.49 sq mi) and population of well over 28 million. Jakarta is listed as a global city in the 2008 Globalization and World Cities Study Group and Network (GaWC) research. Based on survey by Brooking Institute, in 2011 growth of economic of Jakarta ranked 17th among the world's 200 largest cities, a jump from its 2007 ranking of 171. Jakarta has grown more rapidly than Kuala Lumpur, Beijing and Bangkok.
In 2014 A.T. Kearney as Global consultant released the Global Cities Index, which also includes the Emerging Cities Outlook 2014 which mentioned Jakarta as rank first among 35 cities. Jakarta has a bustling luxury property market. Knight Frank, a global real estate consultancy based in London, reported in 2014 that Jakarta offers the highest return on high-end property investment in 2013 as compared to any other cities in the world.
Established in the fourth century, the city became an important trading port for the Kingdom of Sunda. It was the de facto capital of the Dutch East Indies (known as Batavia at that time) and has continued as the capital of Indonesia since the country's independence was declared in 1945.
The city is the seat of the ASEAN Secretariat. Jakarta is served by theSoekarno-Hatta International Airport, Halim Perdanakusuma Airport and Tanjung Priok Harbour; it is connected by several intercity andcommuter railways, and served by several bus lines running on reserved busways.

Wednesday, January 8, 2014

The National Monument

The National Monument (Indonesian : Monumen Nasional), or simply Monas is a 132 m (433ft) tower in the centre of Merdeka Square, Central Jakarta, symbolizing the fight for Indonesia. It is the national monument of the Republic of Indonesia, built to commemorate the struggle for Indonesian independence.
Construction began in 1961 under the direction of President Sukarno. Monas was opened to the public in 1975. It is topped by a flame covered with gold foil. The monument and the museum are open daily from 08.00 - 15.00 Western Indonesia Time (UTC+7) throughout the week except for the last Monday of each month when the monument is closed.
Reference : Wikipedia Encyclopedia

Tuesday, December 3, 2013

Prambanan Temple




Candi Prambanan or Candi Rara Jonggrang is a 9th-century  Hindu Temple compound in  Central Java, Indonesia, dedicated to the Trimurti, the expression of God as the Creator (Brahma), the Preserver (Vishnu) and the Destroyer  (Shiva). The temple compound is located approximately 17 kilometres (11 mi) northeast of the city of  Yogyakarta on the boundary between Central Java and  Yogyakarta Province. 
The temple compound, a  UNESCO World Heritage Site, is the largest Hindu temple site in Indonesia, and one of the biggest in Southeast Asia. It is characterized by its tall and pointed architecture, typical of   Hindu Temple Architecture, and by the towering 47-metre-high (154 ft) central building inside a large complex of individual temples. Prambanan attracts many visitors from across the world. Reference : Wikipedia Encyclopedi.

Kinahrejo Village

Kinahrejo Village, Sleman, located only 4 kilometers from Mount Merapi. Before the eruption of Mount Merapi in the year 2010, the Village Kinahrejo was a favorite tourist area for ​​local and foreign tourists. 

Before the eruption of Mount Merapi in the year 2010, the Village Kinahrejo a favorite tourist area of ​​local and foreign tourists. Kinahrejo is the residence village of the late Mbah Maridjan. He is a trim caretaker until his death in 2010 because of a hot cloud on Mount Merapi last erupted in late 2010. Nowadays Kinahrejo become the best panoramic sunrise of mount Merapi. 
Reference : Clownol, Indonesiavirtual, Wikipedia Encyclopedia

Jalan Malioboro

Jalan Malioboro (English : Malioboro Street) is a major shopping street in Yogyakarta, Indonesia ; the name is also used more generally for the neighborhood around the street. It lies north-south axis in the line between Yogyakarta Kraton and Mount Merapi. This is in itself is significant to many of the local population, the north south orientation between the palace and the volcano being of importance.
The street is the centre of Yogyakarta's largest tourist district surrounded with many hotels and restaurants nearby. Sidewalks on both sides of the street are crowded with small stalls selling a variety of goods. In the evening several open-air streetside restaurants, called Lesehan, operate along the street. Less obvious to the tourist, but more for the local population, side streets, lanes and structures that lead on to Malioboro are as important as the street itself.

Reference : Wikipedia Encyclopedia