Optimizing of the Investment Structure of the Telecommunication Sector Company

P. N. Brusov^{1, *}, T. V. Filatova^{2}, N. P. Orekhova^{3}, A. P. Brusova^{4}, V. L. Kulik^{4}

^{1}Applied Mathematics Department, Financial University under the Government of Russian Federation, Moscow, Russia

^{2}Dean of GMM Faculty, Financial University under the Government of Russian Federation, Moscow, Russia

^{3}High School of Business, Southern Federal University, Investment and Taxation Laboratory, Research Consortium of Universities of the South of Russia,Rostov-on-Don, Russia

^{4}Management Department, Financial University under the Government of Russian Federation, Moscow, Russia

Abstract

In this paper developed by the authors models of evaluation of the dependence of effectiveness of investments on debt financing are applied for the analysis of investments of one of the biggest telecommunication company of Russia for 2010-2012 years from the point of view of optimal structure of investment. The analysis revealed, that only in 2011 the company's investment structure was close to the optimal.

Keywords

Investment Projects with Arbitrary Duration, Effectiveness of Investment Project, Optimal Leverage Level, Taxes Impact

Received:May 3, 2015

Accepted: May 28, 2015

Published online: June 30, 2015

@ 2015 The Authors. Published by American Institute of Science. This Open Access article is under the CC BY-NC license. http://creativecommons.org/licenses/by-nc/4.0/

Contents

1. Introduction 2. Investment Analysis and Recommendations for Telecommunication Company "Nastcom Plus" 2.1. The Dependence of NPV on Investment Capital Structure 2.2. The Dependence of NPV on the Equity Capital Value and Coefficient b 2.3. Conclusions 3. Effects of Taxation on the Optimal Capital Structure of Companies in the Telecommunication Sector 4. Conclusions

1. Introduction

Investments in tangible and intangible assets play an important role in the activities of any company. They are a necessary condition for structural adjustment and economic growth, provide the creation of new and enhancement of existing basic funds and industries. The role of investment, which is always the one of the most important, is increased many times at the current stage.

For example, in Russia a priority of budget will be the reduced of dependence of the price of oil and gas. The main issue, that help at least to start the movement on this way are, of course, investments. In this way, the role of investment at the present stage is indeed increasing dramatically. In this regard, the role of evaluation of efficiency of investment projects, which in the context of scarcity and limited investment resources allow choose for the realization of the most effective projects, increases. Since virtually all investment projects use debt financing, the purpose of the study of impact of debt financing, capital structure on the efficiency of investment projects, determining of the optimal level leverage - always actual, and, of course, is especially actual at the present time.

Hope to determine the optimal capital structure, in which one or more parameters of efficiency of the project (NPV, IRR, etc.) are maximum, more than half a century has encouraged researchers to deal with the issue. Some of the major problems in the assessment of the effectiveness of the projects are the following :

● What financial flows and how it is necessary to take into account when calculating parameters of efficiency of the project (NPV, IRR, etc. );

● how many discount rate should be used for discounting of financial flows associated with investments;

● how correctly to determine these discount rate.

Discussion concerning the first two problems is still continuing. On the third issue, one needs to note that, in recent years there has been a significant progress in the more correct determining of the cost of the equity capital of the company and its weighted average cost, which as time and are the discount rate when evaluating the NPV of the project. The progress is associated with work performed by Brusov, Filatova and Orekhova (Brusov P, Filatova T, Orehova N, Eskindarov M 2015; Brusov et al 2011a,b,c,d,e; 2012 a,b; 2013 a,b,c; 2014 a,b; Filatova et al 2008), in which the general theory of capital cost of the company (equity cost as well as weighted average cost) was established and its dependence on leverage and on life-time of company was found for the companies with arbitrary life-time. The main difference between their theory and theory by Modigliani and Miller is that former one waives from the perpetuity of the companies, that leads to significant differences of a new theory from theory of Nobel laureates Modigliani and Miller (Modigliani et al 1958, 1963, 1966).

The lack of modern methods of evaluation of effectiveness of investment projects with account of the debt financing, with the correct assessment of discount rate, used in investment models, has identified the need for research. The establishment of such modern models, considering problem from the point of view of equity capital owners as well as from the point of view of equity and debt capital owners, with the use of modern theory by Brusov, Filatova and Orekhova of assess of the equity capital cost and weighted average cost of capital of the company (Modigliani et al 1958, 1963, 1966), which play the role of discount rate in the investment models, can significantly contribute to the problem of the assessment of investment projects effectiveness.

2. Investment Analysis and Recommendations for Telecommunication Company "Nastcom Plus"

Based on the method, developed by the authors (Brusov P, Filatova T, Orehova N, Eskindarov M 2015; Brusov et al 2011a,b,c,d,e; 2012 a, b; 2013 a,b,c; 2014 a, b; Filatova et al 2008) let us analyze the efficiency of investments of one of the leading companies in the telecommunication sector "Nastcom Plus" for 2010-2012 years from the point of view of optimal structure of investment. The source data for the analysis are presented in Table. 1

Indicator | 2010 | 2011 | 2012 |

Investment I, million dollars | 1.124 | 2.05 | 2.763 |

Revenue, million dollars | 7 204. 335 | 8 232.172 | 9 418.773 |

Net operating income for the year before taxing, NOI, million dollars | 2 161.3 | 2 469.174 | 2 826 |

Equity cost at zero leverage, k0, % | 23.67 | 23.67 | 23.67 |

Debt cost , % | 8.26 | 7.4 | 6.69 |

Return-on-investment for one year, β = I / NOI | 1.92 | 1.204 | 1.02 |

Amount of debt financing , % | 35 | 50 | 50 |

Amount of equity, % | 65 | 50 | 50 |

Leverage level, L | 0.54 | 1 | 1 |

Amount of equity capital S, million dollars | 730.6 | 1 025 | 1 381.5 |

Quantity *k*_{0} is the equity cost of financially independent company (or equity cost at zero leverage) and for "Nastcom Plus" is equal to 23,67% (Brusova 2011). Here are also calculated dependence of weighted average cost of capital WACC and the equity cost on leverage (Fig. 1 ).

2.1. The Dependence of NPV on Investment Capital Structure

Analysis of investment will be continued with use of the formula provided in the works (Brusov P, Filatova T, Orehova N, Eskindarov M 2015; Brusov et al 2011a,b,c,d,e; 2012 a,b; 2013 a,b,c; 2014 a,b; Filatova et al 2008):

, (1)

where

*NPV* – net present value;

*S – *equity capital amount;

*L – *leverage level;

*t – *tax on profit rate;

*k _{d }–* debt cost;

*n *– project duration;

β – return-on-investment for one year;

*k _{e} *– equity cost.

*Analysis of investments in 2010 year* Using company's data (Table 1 ), we compute the *WACC, k _{e}*

Project Duration n | Leverage level L | ||||||||||

0 | 0.5 | 1 | 1.5 | 2 | 2.5 | 3 | 3.5 | 4 | 4.5 | 5 | |

2 | 0.2367 | 0.2284 | 0.2242 | 0.2217 | 0.2201 | 0.2189 | 0.2180 | 0.2173 | 0.2167 | 0.2163 | 0.2159 |

5 | 0.2367 | 0.2262 | 0.2209 | 0.2177 | 0.2156 | 0.2141 | 0.2130 | 0.2121 | 0.2114 | 0.2108 | 0.2103 |

7 | 0.2367 | 0.2256 | 0.2199 | 0.2166 | 0.2143 | 0.2127 | 0.2116 | 0.2106 | 0.2099 | 0.2093 | 0.2087 |

10 | 0.2366 | 0.2250 | 0.2190 | 0.2155 | 0.2131 | 0.2114 | 0.2101 | 0.2091 | 0.2083 | 0.2076 | 0.2071 |

project duration n | Leverage level L | ||||||||||

0 | 0.5 | 1 | 1.5 | 2 | 2.5 | 3 | 3.5 | 4 | 4.5 | 5 | |

2 | 0.2367 | 0.3096 | 0.3824 | 0.4552 | 0.5280 | 0.6008 | 0.6736 | 0.7464 | 0.8192 | 0.8920 | 0.9649 |

5 | 0.2367 | 0.3063 | 0.3758 | 0.4452 | 0.5147 | 0.5841 | 0.6536 | 0.7230 | 0.7925 | 0.8619 | 0.9314 |

7 | 0.2367 | 0.3053 | 0.3738 | 0.4423 | 0.5107 | 0.5791 | 0.6480 | 0.7165 | 0.7850 | 0.8535 | 0.9220 |

10 | 0.2366 | 0.3044 | 0.3720 | 0.4396 | 0.5071 | 0.5746 | 0.6422 | 0.7097 | 0.7772 | 0.8447 | 0.9122 |

Project duration n | Leverage level L | ||||||||||

0 | 0.5 | 1 | 1.5 | 2 | 2.5 | 3 | 3.5 | 4 | 4.5 | 5 | |

2 | 910.5 | 1 181.8 | 1 358.3 | 1 458.5 | 1 496.3 | 1 482.8 | 1 426.6 | 1 334.6 | 1 212.4 | 1 064.5 | 894.5 |

5 | 2 371.6 | 2 979.2 | 3 347.7 | 3 547.1 | 3 624.5 | 3 612.4 | 3 533.6 | 3 404.2 | 3 236.1 | 3 038.0 | 2 816.2 |

7 | 2 939.0 | 3 594.8 | 3 955.1 | 4 121.6 | 4 157.6 | 4 103.6 | 3 981.6 | 3 86 | 3 619.9 | 3 397.1 | 3 155.1 |

10 | 3 444.5 | 4 086.2 | 4 396.9 | 4 509.1 | 4 497.4 | 4 405.3 | 4 258.9 | 4 074.9 | 3 863.8 | 3 632.7 | 3 386.5 |

In the company's investment in 2010 equity capital accounted for 65 %, and debt - 35 %, i.e. the leverage level was equal to L = 0.54 . The term hardware depreciation, into establishment of which investment were done, was five years. Curve 2 (Fig. 2 ) corresponds to dependence of NPV on leverage level for the five-year project. Optimum NPV is achieved when L = 2. At this leverage level *NPV* = 3 624.5 million dollars.

The level leverage with which company "Nastcom Plus" has carried out its investment projects (L = 0.54), was lying far from optimum and provided NPV = 2.979.2 million dollars, that is approximately 645 million dollars less than optimal NPV value.

Since the equipment can be operated and after depreciation, one can estimate the NPV and for a more long-term perspective. For example, seven-year project the optimal leverage value is *L* = 2.0, when the NPV = 4,157.6 million dollars, that is for 562.8 million dollars more than non-optimal values of NPV = 3,594.8 million dollars, obtained by the company. For the ten-year project the optimal leverage level *L *= 1.5, with *NPV* = 4,509.1 million dollars, that is for 422.9 million dollars more than non-optimal values of NPV = 4, 086.2 million dollars, obtained by the company (Fig. 2, Tables 2–4).

*Analysis of investments in 2011 year *Using company's data, we compute the *WACC, k _{e}*

project duration n | Leverage level L | ||||||||||

0 | 0.5 | 1 | 1.5 | 2 | 2.5 | 3 | 3.5 | 4 | 4.5 | 5 | |

2 | 0.2367 | 0.3096 | 0.3824 | 0.4552 | 0.5280 | 0.6008 | 0.6736 | 0.7464 | 0.8192 | 0.8920 | 0.9649 |

5 | 0.2367 | 0.3063 | 0.3758 | 0.4452 | 0.5147 | 0.5841 | 0.6536 | 0.7230 | 0.7925 | 0.8619 | 0.9314 |

7 | 0.2367 | 0.3053 | 0.3738 | 0.4423 | 0.5107 | 0.5791 | 0.6480 | 0.7165 | 0.7850 | 0.8535 | 0.9220 |

10 | 0.2366 | 0.3044 | 0.3720 | 0.4396 | 0.5071 | 0.5746 | 0.6422 | 0.7097 | 0.7772 | 0.8447 | 0.9122 |

project duration n | Leverage level L | ||||||||||

0 | 0.5 | 1 | 1.5 | 2 | 2.5 | 3 | 3.5 | 4 | 4.5 | 5 | |

2 | 0.2367 | 0.3142 | 0.3916 | 0.4690 | 0.5464 | 0.6239 | 0.7013 | 0.7787 | 0.8561 | 0.9335 | 1.0110 |

5 | 0.2367 | 0.3110 | 0.3853 | 0.4595 | 0.5338 | 0.6080 | 0.6822 | 0.7565 | 0.8307 | 0.9049 | 0.9791 |

7 | 0.2367 | 0.3100 | 0.3833 | 0.4565 | 0.5297 | 0.6029 | 0.6761 | 0.7493 | 0.8230 | 0.8963 | 0.9695 |

10 | 0.2366 | 0.3091 | 0.3813 | 0.4536 | 0.5258 | 0.5980 | 0.6702 | 0.7424 | 0.8146 | 0.8868 | 0.9589 |

project duration n | Leverage level L | ||||||||||

0 | 0.5 | 1 | 1.5 | 2 | 2.5 | 3 | 3.5 | 4 | 4.5 | 5 | |

2 | 418.8 | 460.5 | 415.8 | 302.3 | 133.3 | –80.9 | –332.5 | –615.0 | –923.5 | –1 254.0 | –1 603.1 |

5 | 1 704.2 | 2 025.4 | 2 131.8 | 2 089.9 | 1 943.2 | 1 721.0 | 1 443.5 | 1124.7 | 774.8 | 400.9 | 8.5 |

7 | 2 203.4 | 2 558.0 | 2 650.5 | 2 576.1 | 2 392.2 | 2 134.4 | 1 825.6 | 1480.7 | 1 105.7 | 715.0 | 309.8 |

10 | 2 648.2 | 2 982.3 | 3 028.1 | 2 907.1 | 2 685.2 | 2 399.5 | 2 071.6 | 1715.0 | 1 338.0 | 946.0 | 542.9 |

In the company's investment in 2011 equity capital accounted for 50 %, and debt capital - 50 % as well, i.e. the leverage level was equal to L = 1. The term hardware depreciation, into establishment of which investment were done, was five years. Curve 2 (Fig. 3) corresponds to dependence of NPV on leverage level for the five-year project. Optimum NPV is achieved approximately at L = 1. More accurate calculations show that optimal value NPV = 2,133.7 million dollars is achieved when L = 1.1.

The level leverage with which company "Nastcom Plus" has carried out its investment projects (L = 0.1), was lying in the vicinity of optimum and provided NPV = 2,131.8 million dollars, that is just 2 million dollars less than optimal NPV value. You can take it that, in 2011, investment in "Nastcom Plus" company have been carried out with almost optimal structure.

*Analysis of investments in 2012 year *Using company's data, we compute the *WACC, k _{e}*

project duration n | Leverage level L | ||||||||||

0 | 0.5 | 1 | 1.5 | 2 | 2.5 | 3 | 3.5 | 4 | 4.5 | 5 | |

2 | 0.2367 | 0.2298 | 0.2264 | 0.2243 | 0.2229 | 0.2219 | 0.2212 | 0.2206 | 0.2202 | 0.2198 | 0.2195 |

5 | 0.2367 | 0.2278 | 0.2234 | 0.2207 | 0.2189 | 0.2176 | 0.2167 | 0.2159 | 0.2153 | 0.2148 | 0.2144 |

7 | 0.2367 | 0.2272 | 0.2224 | 0.2195 | 0.2176 | 0.2162 | 0.2152 | 0.2143 | 0.2137 | 0.2132 | 0.2127 |

10 | 0.2366 | 0.2265 | 0.2213 | 0.2183 | 0.2162 | 0.2147 | 0.2136 | 0.2127 | 0.2120 | 0.2115 | 0.2110 |

project duration n | Leverage level L | ||||||||||

0 | 0.5 | 1 | 1.5 | 2 | 2.5 | 3 | 3.5 | 4 | 4.5 | 5 | |

2 | 0.2367 | 0.3180 | 0.3992 | 0.4805 | 0.5617 | 0.6430 | 0.7242 | 0.8055 | 0.8867 | 0.9680 | 1.0492 |

5 | 0.2367 | 0.3150 | 0.3933 | 0.4715 | 0.5497 | 0.6279 | 0.7062 | 0.7844 | 0.8626 | 0.9408 | 1.0190 |

7 | 0.2367 | 0.3140 | 0.3913 | 0.4685 | 0.5457 | 0.6229 | 0.7001 | 0.7772 | 0.8544 | 0.9316 | 1.0088 |

10 | 0.2366 | 0.3130 | 0.3892 | 0.4653 | 0.5415 | 0.6177 | 0.6938 | 0.7699 | 0.8461 | 0.9222 | 0.9983 |

project duration n | Leverage level L | ||||||||||

0 | 0.5 | 1 | 1.5 | 2 | 2.5 | 3 | 3.5 | 4 | 4.5 | 5 | |

2 | 267.0 | 200.9 | 33.4 | –214.0 | –525.3 | –888.3 | –1 293.4 | –1 733.4 | –2 202.4 | –2 695.8 | –3 209.9 |

5 | 1 734.8 | 1 968.9 | 1 954.6 | 1 771.8 | 1 472.1 | 1 089.6 | 647.1 | 160.6 | –358.9 | –903.4 | –1 467.2 |

7 | 2 304.7 | 2 566.9 | 2 528.9 | 2 304.4 | 1 960.4 | 1 537.2 | 1 060.3 | 545.9 | 4.7 | –556.0 | –1 131.2 |

10 | 2 812.6 | 3 041.6 | 2 945.5 | 2 667.4 | 2 281.9 | 1 829.9 | 1 335.0 | 811.1 | 266.8 | –292.2 | –862.1 |

The company's investment structure in 2012 year was the same as in 2011: equity capital accounted for 50 %, and debt capital - for 50 %, i.e. the leverage level was equal to L =1. The term hardware depreciation, into establishment of which investment were done, was five years. Curve 2 (Fig. 4) corresponds to dependence of NPV on leverage level for the five-year project. Optimum NPV is achieved when L = 0.5. More accurate calculations show that optimal value NPV = 1. 987.7 million dollars is achieved when L = 0.7 (Table 11, Fig. 5).

project duration n | Leverage level L | |||||||||||

0.5 | 0.55 | 0.6 | 0.65 | 0.7 | 0.75 | 0.8 | 0.85 | 0.9 | 0.95 | 1 | 1.05 | |

2 | 200.9 | 188.3 | 174.8 | 160.2 | 144.8 | 128.4 | 111.1 | 92.9 | 73.9 | 54.1 | 33.4 | 12.0 |

5 | 1 968.9 | 1 977.0 | 1 982.8 | 1 986.3 | 1 987.7 | 1 987.0 | 1 984.2 | 1 979.5 | 1 973.0 | 1 964.6 | 1 954.6 | 1 942.8 |

7 | 2 566.9 | 2 574.2 | 2 578.8 | 2 580.6 | 2 580.0 | 2 576.9 | 2 571.5 | 2 563.9 | 2 554.2 | 2 542.5 | 2 528.9 | 2 513.5 |

10 | 3 041.6 | 3 043.5 | 3 042.4 | 3 038.5 | 3 032.0 | 3 023.1 | 3 011.7 | 2 998.2 | 2 982.6 | 2 965.0 | 2 945.5 | 2 924.3 |

The level leverage, with which company "Nastcom Plus" has carried out its investment projects (L = 0.1 ), did not correspond to optimum value (L=0.7) and provided NPV = 1,954.6 million dollars, that is 31.7 million dollars less than optimal NPV value (Figs. 4 and 5 ; Tables 10 and 11).

Since the equipment can be operated and after depreciation, one can estimate the NPV and for a more long-term perspective. For example, for seven-year project the optimal leverage value is *L* =0.65, when the NPV = 2,580.6 million dollars, that is for 51.7 million dollars more than non-optimal values of NPV = 2,528.9 million dollars, obtained by the company. For the ten-year project the optimal leverage level *L *= 0.55, with *NPV* =3,043.5 million dollars , that is for 98 million dollars more than non-optimal values of NPV = 2,945.5 million dollars , obtained by the company.

2.2. The Dependence of NPV on the Equity Capital Value and Coefficient b

Let us investigate the dependence of NPV on the equity capital value and coefficient b (Tables 12–15, Figs. 6–9).

Equity. S | Leverage level L | ||||||||||

0 | 0.5 | 1 | 1.5 | 2 | 2.5 | 3 | 3.5 | 4 | 4.5 | 5 | |

1 382 | 1 734.8 | 1 968.9 | 1 954.6 | 1 771.8 | 1 472.1 | 1 089.6 | 647.1 | 160.6 | –358.9 | –903.4 | –1 467.2 |

1 000 | 1 255.7 | 1 425.2 | 1 414.8 | 1 282.5 | 1 065.6 | 788.7 | 468.4 | 116.2 | –259.8 | –653.9 | –1 062.0 |

1 200 | 1 506.8 | 1 710.2 | 1 697.8 | 1539.0 | 1 278.7 | 946.4 | 562.1 | 139.5 | –311.8 | –784.7 | –1 274.4 |

1 600 | 2 009.1 | 2 280.3 | 2 263.7 | 2 052.0 | 1 705.0 | 1 261.9 | 749.5 | 186.0 | –415.7 | –1 046.3 | –1 699.2 |

1 800 | 2 260.3 | 2 565.3 | 2 546.7 | 2 308.5 | 1 918.1 | 1 419.7 | 843.2 | 209.2 | –467.6 | –1 177.1 | –1 911.6 |

Equity. S | Leverage level L | ||||||||||

0 | 0.5 | 1 | 1.5 | 2 | 2.5 | 3 | 3.5 | 4 | 4.5 | 5 | |

1 382 | 146.1 | –71.8 | –411.5 | –833.8 | –1 313.3 | –1 833.5 | –2 383.1 | –2 954.2 | –3 541.6 | –4 141.1 | –4 750.2 |

1 000 | 105.7 | –52.0 | –297.9 | –603.5 | –950.7 | –1 327.2 | –1 725.0 | –2 138.4 | –2 563.6 | –2 997.6 | –3 438.4 |

1 200 | 126.9 | –62.4 | –357.4 | –724.2 | –1 140.8 | –1 592.6 | –2 070.0 | –2 566.1 | –3 076.3 | –3 597.1 | –4 126.1 |

1 600 | 169.2 | –83.2 | –476.6 | –965.6 | –1 521.0 | –2 123.5 | –2 760.0 | –3 421.5 | –4 101.7 | –4 796.1 | –5 501.4 |

1 800 | 190.3 | –93.6 | –536.2 | –1 086.3 | –1 711.2 | –2 388.9 | –3 105.0 | –3 849.2 | –4 614.4 | –5 395.6 | –6 189.1 |

With increase of the equity value, optimum is observed for all of the values S when leverage level is approximately equal to L = 0.7, and the optimum value, as well as the NPV value is growing with increasing S, as long as the project remains effective (up to the leverage level approximately L = 3.7 ).

With decrease of the return on investment (b = 0.5) the dependence of the NPV on leverage changes significantly: now NPV monotonically decreases with the leverage at all values of equity capital S (Fig. 7 ).

Equity. S | Leverage level L | ||||||||||

0 | 0.5 | 1 | 1.5 | 2 | 2.5 | 3 | 3.5 | 4 | 4.5 | 5 | |

1 382 | 3 201.2 | 3 852.6 | 4 138.6 | 4 176.9 | 4 043.3 | 3 787.8 | 3 444.2 | 3 035.8 | 2 578.9 | 2 085.3 | 1 563.3 |

1 000 | 2 32 | 2 788.7 | 2 995.8 | 3 023.5 | 2 926.8 | 2 741.8 | 2 493.1 | 2 197.5 | 1 866.7 | 1 509.4 | 1 131.6 |

1 200 | 2 780.7 | 3 346.5 | 3 594.9 | 3 628.2 | 3 512.1 | 3 290.2 | 2 991.7 | 2 637.0 | 2 240.1 | 1 811.3 | 1 357.9 |

1 600 | 3 707.5 | 4 462.0 | 4 793.2 | 4 837.6 | 4 682.8 | 4 386.9 | 3 989.0 | 3 515.9 | 2 986.8 | 2 415.1 | 1 810.6 |

1 800 | 4 171.0 | 5 019.7 | 5 392.4 | 5 442.3 | 5 268.2 | 4 935.3 | 4 487.6 | 3 955.4 | 3 360.1 | 2 716.9 | 2 036.9 |

With increase of the return on investment (b = 1.5) the NPV of the project has an optimum at all values of equity capital S at leverage level L=1.5 and NPV(L) curve is going up with the increase in S until the project remains effective (up to the leverage level approximately L = 7). The optimum position (value *L*_{0}) is almost does not depend on the equity value S (*L*_{0} = 1.5). This means the possibility of a tabulation of obtained results by the known values *k*_{0} and *k _{d }*for large values, when in dependence of NPV(L) there is an optimum.

Equity. S | Leverage level L | ||||||||||

0 | 0.5 | 1 | 1.5 | 2 | 2.5 | 3 | 3.5 | 4 | 4.5 | 5 | |

1 382 | 4 728.8 | 5 814.9 | 6 413.7 | 6 682.3 | 6 721.7 | 6 598.5 | 6 357.9 | 6 030.8 | 5 639.2 | 5 198.5 | 4 720.0 |

1 000 | 3 423.0 | 4 209.1 | 4 642.6 | 4 837.0 | 4 865.5 | 4 776.3 | 4 602.2 | 4 365.4 | 4 081.9 | 3 762.9 | 3 416.6 |

1 200 | 4 107.5 | 5 050.9 | 5 571.1 | 5 804.4 | 5 838.6 | 5 731.6 | 5 522.6 | 5 238.5 | 4 898.3 | 4 515.5 | 4 099.9 |

1 600 | 5 476.7 | 6 734.5 | 7 428.1 | 7 739.2 | 7 784.8 | 7 642.1 | 7 363.4 | 6 984.7 | 6 531.1 | 6 020.6 | 5 466.6 |

1 800 | 6 161.3 | 7 576.4 | 8 356.6 | 8 706.6 | 8 757.9 | 8 597.4 | 8 283.9 | 7 857.8 | 7 347.4 | 6 773.2 | 6 149.9 |

With further increase of the return on investment (b = 2) NPV of the project has an optimum for all values S at leverage level which is already approximately equal to L = 1.8, and the value of optimum as well as of NPV in general is growing with increasing S, until the project remains an effective (up to leverage level of order L=8.5, see Fig. 9).

In this way, the analysis of the dependence of NPV on the equity value S and on the return on investment b allows us conclude, that in contrast to the parameters I and* NOI* the change of parameters S and b, both individually and simultaneously, can significantly change the nature of the dependence of NPV on leverage level.

With increase of return on investment (with the increased b) there is a transition from the monotonic decrease of NPV of the project with leverage (Fig. 7 ) to the existing of the optimum at all values of S (see fig. 6 and 8 ). The growth of b leads to growth of NPV as well as to growth of the limit leverage value, up to which project remains an effective.

This means the inability of tabulation of the results, obtained in the general case of a constant value of equity capital: in this case, it is necessary to use the obtained by authors in the works (Brusov et al 2011a,b,c,d,e; 2012 a,b; 2013 a,b,c; 2014 a,b; Filatova et al 2008) formulas to determine the NPV at the existing leverage level, as well as for optimization of existing investment structure. Tabulation is possible only in the case of large b values (), when there is an optimum in the dependence of NPV on the leverage level.

2.3. Conclusions

In 2010, the company "Nastcom Plus" worked at leverage level L = 0.54 instead of optimal value L = 2.0. The NPV loss amounted to 645 million dollars.

In 2012, the company worked at leverage level L = 1.0 instead of optimal value L = 0.7 . The NPV loss amounted from 32 to 98 million dollars, depending on the term of operation of equipment.

The authors have evaluated effectiveness of investment at existing level of debt financing and have developed recommendations on the optimum level of leverage for the Russian company "Nastcom Plus" in 2010-2012.

The results indicate that, if in 2011 financial structure of investment of company " Nastcom Plus" was close to the optimal and NPV was only 2 million dollars less than the optimal value, in 2010, when the leverage level was L = 0.54, NPV was 645 million dollars less than optimal value (the optimal leverage level should be equal to L = 2).

In 2012 the leverage level, with which company "Nastcom Plus" has carried out its investment projects (L = 0.1 ), did not correspond to optimum value (L=0.7) and provided NPV = 1,954.6 million dollars, that is 31.7 million dollars less than optimal NPV value (Tables 10 and 11; Figs. 4;5).

Since the equipment can be operated and after depreciation, one can estimate the NPV and for a more long-term perspective. For example, for seven-year project the optimal leverage value is *L* =0.65, when the NPV = 2,580.6 million dollars, that is for 51.7 million dollars more than non-optimal values of NPV = 2,528.9 million dollars, obtained by the company. For the ten-year project the optimal leverage level *L *= 0.55, with *NPV* =3,043.5 million dollars , that is for 98 million dollars more than non-optimal values of NPV = 2,945.5 million dollars , obtained by the company.

3. Effects of Taxation on the Optimal Capital Structure of Companies in the Telecommunication Sector

We continue the analysis of activity of the company "Nastcom Plus". In this paragraph we examine the effect of change of tax on profit rate, both in the case of its increase as well as decrease, on optimal structure of investments at different project durations.

It is shown, that increasing of tax on profit rate leads to degradation (decreasing) of NPV, and degradation is reduced with an increase project duration. In particular, for the five-year project (amortization period) when the tax on profit rate decreases on 1%, NPV decreases on 1.5% - 2.34% in different years.

Impact of change of tax on the profit rate on the optimum position while it exists (change optimum position is changed for two-years and ten-years projects in 2010, and for the five-year project in the 2012 year (for 0.5 -1 (in L units)), nevertheless the optimum position turns out to be sufficiently stable.

2010 t\n | 2 | 5 | 7 | 10 |

15% | 3 | 2 | 2 | 2 |

20% | 2 | 2 | 2 | 1.5 |

25% | 2 | 2 | 2 | 2 |

2010 | t=20%-15% | t=25%-20% | On 5% | On 1% |

n=2 | 418/487 | 204 | 34% | 6.8% |

5 | 266 | 273 | 7.45% | 1.49% |

7 | 263 | 271 | 6.88% | 1.37% |

10 | 245 | 256 | 5. 56% | 1.11% |

2011 t\n | 2 | 5 | 7 | 10 |

15% | 0.5 | 1 | 1 | 1 |

20% | 0.5 | 1 | 1 | 1 |

25% | 0.5 | 1 | 1 | 1 |

2011 | t=20%-15% | t=25%-20% | On 5% | On 1% |

n=2 | 119 | 118 | 25.8% | 5.16% |

5 | 222 | 223 | 10.2% | 2.04% |

7 | 236 | 239 | 8.75% | 1.75% |

10 | 238 | 242 | 7.7% | 1.54% |

2012 t\n | 2 | 5 | 7 | 10 |

15% | 0 | 1 | 0.5 | 0.5 |

20% | 0 | 0.5 | 0.5 | 0.5 |

25% | 0 | 0.5 | 0.5 | 0.5 |

2012 | t=20%-15% | t=25%-20% | On 5% | On 1% |

n=2 | 104 | 103 | 39% | 7.8% |

5 | 229 | 229 | 11.7% | 2.34% |

7 | 253 | 256 | 9.9% | 1.98% |

10 | 269 | 271 | 8.9% | 1.74% |

It is shown, that increasing of tax on profit rate leads to degradation (decreasing) of NPV, and degradation is reduced with an increase of project duration. Note, that for the five-year project (amortization period) when the tax on profit rate decreases on 1%, NPV decreases on 2.34% in 2012, on 2.04% - in 2011 and on 1.49 - in 2010.

4. Conclusions

Paper is devoted to optimizing of the investment structure of the telecommunication sector company "Nastcom Plus". We examine the effect of change of tax on profit rates, both in the case of its increase as well as decrease, on optimal structure of investments at different project durations. All calculations have been done within modern theory of capital cost and capital structure by Brusov-Filatova-Orekhova. The analysis of investments carried out by the formula, obtained by us earlier for the case of constant value of equity capital. Consideration has been done from the point of view of owners of equity capital.

It is shown that increasing of tax on profit rates leads to degradation (decreasing) of NPV, and degradation is reduced with an increase project duration. In particular, for 5-year project (amortization period) with increase of tax on profit rate on 1% NPV decreases on 1,5%-2,34% for different years.

Influence of change of tax on profit rate, while there is, (optimum for 2-years and 10-years projects in 2012 is changed (on 0,5-1 (in leverage units)), nevertheless the optimum position is stable

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