THE USAGE OF THE METHOD OF CASH FLOW TO EQUITY IN CAPITAL BUDGETING INVESTMENT DECISIONS AND COMPARISON WITH THE METHOD OF CASH FLOW TO PROJECT

Yıl 2009, Cilt: 11 Sayı: 1, 219 - 236, 01.06.2009

Hasan Bal

Öz

Investments are regarded as feasible to the projects with positive net present
value, that is, those increasing the value of the firm in capital budgeting, while
investments in the projects with negative net present values are rejected. The
main objective in the maximization of the firm value is the maximization of
shares, in other words, the maximization of the value of the shareholders who
makes it possible to make use of resources for the firm involved. It has been
observed that when the methods of free cash flow to firm and free cash flow to
equity are employed within the scope of capital budgeting, each method has
yielded different results. In this study, free cash flow to firm is termed as “cash
flow to project”, and free cash flow to equity is termed as “cash flow to equity”.
In the method of cash flow to project, the cash flows are determined belonging
to the lenders and equity holders and then these cash flow are reduced to the
current value with weighted average cost of capital. On the other hand, in the
method of cash flow to equity, only by determining the cash flow that will be
provided to the equity holders, the calculated cash flows to equity are reduced
to current day with the cost of equity. With respect to the method of cash flow to
project, if the internal rate of return is higher than the cost of capital, the net
current value becomes positive, in which case investment in the project is
regarded feasible, while in the method of cash flow to equity, if the internal rate
of return is higher than the cost of equity, net present value becomes positive
and the investment in the project is accepted.
In this study, it has been tested whether a project with earnings before
interest, taxes, depreciation and amortization in equal amounts each year will
be accepted by firms with different structures through the methods of cash flow
to projects and cash flow to equity and the net present values were found out to
be in different amounts. On the other hand, in terms of the acceptance and the
rejection of the project, the methods might be sometimes contradictory among
themselves. That is to say, while cash flow to project could be accepted, cash
flow to equity could be rejected. The financial leverage ratio of the firms with
the same cost of debt and equity is 46%, 48% for the second, 50% for the third,
52% for the fourth, and 54% for the fifth one. The firm the lowest financial
leverage ratio has the highest weighted average capital cost, and as the rate of
financial leverage rises, weighted average capital cost decreases. According to
project assessment result for the first firm, net present value is negative by the
two methods. As for the second firm, net present value of the firm is positive in
terms of cash flow to project, while it is negative in terms of cash flow to equity.
That is, for the second firm, the project is accepted in terms of cash flow to
project, while it is rejected in terms of cash flow to equity. As for the, third,
fourth, and the fifth firms, the net present values calculated were found out to be
positive. In other words, for these three firms, the project is accepted in terms of
both cash flow to project and cash flow to equity.
Methods of cash flow to project and cash flow to equity assess the project in
respect to the shareholders. That is, in the event that the project is accepted, it
concentrates on how much the equity value will increase. However, according
to the first method, when the net present value is positive, namely, as the equity
value rises, the net present value could be negative according to the second
method. That is to say, while the acceptance of the project in terms of the first
method increases the value of the equity, it could decrease it in terms of the
second method. In the method of cash flow to project, while the total cash flow
is discounted with weighted average cost of capital, in the method of cash flow
to equity cash flow belong only to equity holders is discounted in net present
values. Whether the return equity owners’ demand is provided is shown by the
second method more clearly. Hence, the project assessment will be more
reliable and sound.

Anahtar Kelimeler

Capital Budgeting, Cash Flow To Project, Cash Flow To Equity.

SERMAYE BÜTÇELEMESİ YATIRIM KARARLARINDA ÖZKAYNAĞA NAKİT AKIMI YÖNTEMİNİN KULLANILMASI VE PROJEYE NAKİT AKIMI YÖNTEMİ İLE KARŞILAŞTIRILMASI

Öz

Sermaye bütçelemesinde firma değerini artıran yani net bugünkü değeri pozitif olan projelere yatırım kabul edilmektedir. Net bugünkü değeri negatif olan projelere yatırım reddedilmektedir. Firma değeri maksimizasyonunda temel amaç hisse senedi değerinin maksimizasyonu, bir başka ifade ile firmaya kaynak kullandıran taraflardan ortakların değerinin maksimize edilmesidir. Projenin net bugünkü değeri tespit edilirken kullanılan yöntemlerden biri firma değerlemesinde kullanılan firmaya serbest nakit akımları yöntemidir. Bu yöntemde tespit edilen nakit akımları projenin finansmanında kullanılan kaynakların ağırlıklı ortalama sermaye maliyeti ile iskonto edilmektedir. Bu yöntemin yanında yine firma değerlemesinde kullanılan özkaynağa serbest nakit akımları yöntemi de proje değerlemesinde kullanılabilir. Bu yöntemde tespit edilen nakit akımları bugüne özkaynak maliyeti ile iskonto edilmektedir. Bu çalışmada her iki yöntemin bir projeye yatırım kararı verirken çelişip çelişmedikleri araştırılmış ve aynı projenin değerlendirilmesinde iki yönteme göre bulunan net bugünkü değerler farklı sonuçlar vermiştir. Diğer yandan aynı projeyi değerleyen sermaye yapısı farklı firmalar açısından değerleme yapıldığında projenin yapılabilirliği açısından da iki yöntem farklı sonuçlar verebilmektedir. Yani bazı durumlarda birinci yönteme göre projeye yatırım kabul edilmesi gerekirken ikinci yönteme göre projenin reddedilmesi gerekmektedir.

Anahtar Kelimeler

Sermaye Bütçelemesi, Projeye Nakit Akımı, Özkaynağa Nakit Akımı.