Figure 1 Digis Loans and Borrowings Data to take the proportion of debt 31 Cost

Figure 1 digis loans and borrowings data to take the

This preview shows page 13 - 18 out of 30 pages.

with higher risk level will also have a higher cost of debt. Figure 1: Digi's Loans and Borrowings Data to take the proportion of debt 31 “Cost of Debt,” Investopedia, accessed May 2, 2019,
Image of page 13
A table below will show and estimate how the proportion of debt is calculated from Digi’s Annual Report Amount Interest Rate (%) Interest Expense Proportion of Debt NON - CURRENT Floating Rate Term Loans 1,180,674 5% 59033.7 0.05 Floating Rate Financing 430945 5% 21547.25 0.05 Medium Term Notes 898983 5% 44949.15 0.05 Finance Lease Obligation 2081 9% 187.29 0.09 CURRENT Floating Rate Term Loans 112500 5% 5625 0.05 Floating Rate Financing 62500 5% 3125 0.05 Finance Lease 6371 9% 573.39 0.09
Image of page 14
Obligation TOTAL 2694054 135040.78 0.0501 The total cost of debt is equivalent to 0.0501 (or 5.01), where this can already be applied in the Cost of Debt formula and where the Appendix 3c) can simply show how the Malaysian Government tax rate has a standard tax rate of 24%. Therefore, the cost of Debt can now be calculated in the formula expressed below; R d × ( 1 Tax Rate ) 5.01 × ( 1 24% ) ¿ 3.8076 3.5 WACC (Weighted Average Cost of Capital) 32 The weighted average cost of capital is a tool used by financial managers when it comes to capital budgeting and analysis of business valuation, moreover this tool is basically the highlight in financial management courses. The formula of WACC is expressed in the following below; WACC = w e R e + w d R d ( 1 tc ) Wherein; We = The Equity’s Weight Wd = The Debt’s Weight Tc = Tax Rate As a conclusion based on the CAPM vs DGM model comparison and analysis, DGM will be used to determine the cost of equity. 33 The formula would include the following variables, number of outstanding shares (7,775,000,000 units), closing share price as at 31 December 2018 (RM 4.50), Debt Value (RM2,512,683,000). To determine WACC completely, elements of w e and w d needs to be estimated. Digi’s annual report has shown that. 32 Sam G. Berry, Iordanis Karagiannidis, Carl Betterton, “Understanding Weighted Average Cost of Capital: A Pedagogical Application,” Journal of Financial Education, ication 33 “Share Development and Analysis,” Digi Annual Report 2018, accessed May 3, 2019,
Image of page 15
w e = RM 4.50 × 7,775,000,000 ( RM 4.50 X 7,775,000,000 ) + RM 2,512,683,000 =0.9329 or 93.3% w d = 2,512,683,000 ( RM 4.50 × 7,775,000,000 ) + 2,512,683,000 = 0.0669 or 6.70% The value of WACC is to be determined according the cost of equity through DGM, where r e = 6.27% WACC = 0.933 × 6.27% + 0.067 × 5.01 ( 1 24 % ) ¿ 6.11% Using the DGM approach to calculate the WACC would have the above-mentioned results of 6.11% 3.6 Discussion of WACC 34 The WACC is defined as the overall cost of capital of all funding sources of a company. A company can raise its funds from either Equity, Debt, or preferred stock. Total cost of the equity is calculated by the weighted average of these costs. 34 “Weighted Average Cost of Capital – WACC Definition,” Investopedia, accessed on May 3, 2019,
Image of page 16
WACC can be analyzed from 2 perspectives, the investor and the company. From a company’s perspective, it is defined as the blended cost of capital a company must pay for using the capital of both owners and debt holders.
Image of page 17
Image of page 18

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture