Power point Keuangan Korporasi Elok Sri Utami 1

“ Cost of Capital?” When we say a firm has a “cost of capital” of, for example, 12%, we are saying: The firm can only have a positive NPV on a project it return exceeds 12% The firm must earn 12% just to compensate investors for the use of their capital in a project The use of capital in a project must earn 12% or more, not that it will necessarily cost 12% to borrow funds for the project Thus cost of capital depends primarily on the USE of funds, not the SOURCE of funds Keuangan Korporasi Elok Sri Utami 2

Biaya Modal (Cost of Fund) M odal adalah dana yg dipergunakan untuk membiayai pengadaan aktiva dan operasional perusahaan. Sumber modal terlihat di Neraca sebelah kanan (Utang, Saham preferen dan saham biasa, serta Laba ditahan) Sumber modal(dana) mengandung biaya a. Utang  bunga bank (interest)  cost of debt (Kd) b. Saham preferen  dividen  cost of preferen stock(Kps) c. Saham Biasa  dividen  cost of equity d. Laba ditahan  oportunity  cost of equity Keuangan Korporasi Elok Sri Utami3

Tidak semua modal diperhitungkan sebagai dalam menghitung biaya modal, biasanya yang menjadi unsur biaya modal adalah utang (jk panjang) dan modal(equity) yg terdiri dari saham preferen, saham biasa dan laba ditahan. Biaya modal dihitung dari rata-rata tertimbang dari komponen modal (weaghted cost of capital) Keuangan Korporasi Elok Sri Utami4

KegunaanBiaya Modal Maksimisasi nilai perusahaan Keputusan penggaran barang modal (capital Budgeting Keputusan lain, seperti leasing Keuangan Korporasi Elok Sri Utami5

Weighted Average Cost of Capital (overview) A firm’s overall cost of capital must reflect the required return on the firm’s assets as a whole If a firm uses both debt and equity financing, the cost of capital must include the cost of each, weighted to proportion of each (debt and equity) in the firm’s capital structure This is called the Weighted Average Cost of Capital (WACC) Keuangan Korporasi Elok Sri Utami 6

Cost of Debt The cost of debt is generally easier to calculate Equals the current interest cost to borrow new funds Current interest rates are determined from the going rate in the financial markets Exp. Kd = 10 %, pajak 15% Maka yang dihitung adalah : biaya bungan setelah pajak= Kd(1-t) = 10% (1-15%)= 8,5% Keuangan Korporasi Elok Sri Utami 7

Biaya Utang (Cost of Debt) adalah sebesar Kd (1-t) yaitu tingkat utang sebelum pajakx(1-t). Perhitungan ini berdasarkan kenyataan bahwa utang menimbulkan biaya bunga yang akan menurunkan penghasilan yang dikenai pajak. Dengan penggunaan dana hutang maka perusahaan dapat mengurangi pajak harus dibayar, contoh : Perusahaan mempunyai dua alternatif A dengan modal sendiri dan B dengan 50% menggunakan utang dengan bunga 20% dan 50% menggunakan modal sendiri. Pajak sebesar 15%. Keuangan Korporasi Elok Sri Utami8

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Cost of Equity Keuangan Korporasi Elok Sri Utami The Cost of Equity may be derived from the dividend growth model as follows: Po = D 1/ Ks – g Where the price of a security equals its dividend (D1) divided by its return on equity (Ks) less its rate of growth (g). We can invert the variables to find Ks as follows: Ks = D 1/ Po + g D1= dividen akhir periode Po=Harga saham G= pertumbuhan dividen 11

Cost of Equity (2): Keuangan Korporasi Elok Sri Utami Therefore many financial managers prefer the security market line/capital asset pricing model (SML or CAPM) for estimating the cost of equity: RE = Rf + β x (RM – Rf) or Return on Equity = Risk free rate + (risk factor x risk premium) Advantages of SML: Evaluates risk, applicable to firms that don’t pay dividends Disadvantages of SML: Need to estimate both Beta and risk premium (will usually base on past data, not future projections.) 12

Weighted Average Cost of Capital (WACC) WACC weights the cost of equity and the cost of debt by the percentage of each used in a firm’s capital structure WACC=(E/ V) x RE + (D/ V) x RD x (1-TC) (E/V)= Equity % of total value (D/V)=Debt $ of total value (1-Tc)=After-tax % or reciprocal of corp tax rate Tc. The after-tax rate must be considered because interest on corporate debt is deductible Keuangan Korporasi Elok Sri Utami 13

WACC Illustration Keuangan Korporasi Elok Sri Utami ABC Corp has 1.4 million shares common valued at $20 per share =$28 million. Debt has face value of $5 million and trades at 93% of face ($4.65 million) in the market. Total market value of both equity + debt thus =$32.65 million. Equity % =.8576 and Debt % =.1424 Risk free rate is 4%, risk premium=7% and ABC’s β=.74 Return on equity per SML : RE = 4% + (7% x.74)=9.18% Tax rate is 40% Current yield on market debt is 11% WACC = (E/V) x RE + (D/V) x RD x (1-Tc) =.8576 x (.1424 x.11 x.60) = or 8.81% 14

Final notes on WACC WACC should be based on market rates and valuation, not on book values of debt or equity. Book values may not reflect the current marketplace WACC will reflect what a firm needs to earn on a new investment. But the new investment should also reflect a risk level similar to the firm’s Beta used to calculate the firm’s RE. In the case of ABC Co., the relatively low WACC of 8.81% reflects ABC’s β=.74. A riskier investment should reflect a higher interest rate. Keuangan Korporasi Elok Sri Utami 15

Equity vs Debt Financing (1) Since the WACC is the weighted average of cost of equity + cost of debt, we can vary the WACC by changing the mix of debt + equity If cost of debt < cost of equity, we can reduce WACC by increasing the % of debt in the mix and vice versa The value of the firm (its earning’s potential) is maximized when its WACC is minimized. A firm with a lower cost of capital can more easily return profits to its owners Keuangan Korporasi Elok Sri Utami 16

Debt vs Equity Financing (2): The optimal, or target capital structure is the structure with the lowest possible WACC The Interest Tax Shield (deductibility of corp. interest) is critical here, because it effectively lowers the cost of debt. Therefore for many firms, the use of financial leverage (debt financing) can lower WACC and increase profitability Keuangan Korporasi Elok Sri Utami 17

Debt vs. Equity Financing (3): Warning: choice between debt & equity can not be based on interest rates, etc. alone. Risk must be considered as well Systematic risk (see ch. 13) consists of two factors which must be considered Business risk—risk inherent in firm’s operations Financial risk—risk inherent in using debt financing Remember debt is a magnifier: it can magnify returns if returns > cost of debt, but it can also magnify losses, or returns < cost of debt. Keuangan Korporasi Elok Sri Utami 18

Financial Leverage Considerations: If profits are down, dividends (the key cost of equity financing) can often be deferred. Interest (cost of debt) must always be paid for a firm to remain solvent Financial distress costs: costs incurred with going bankrupt or costs that must be paid to avoid bankruptcy According to the static theory of capital structure, gains from the tax shield are offset by the greater potential of financial distress costs. Keuangan Korporasi Elok Sri Utami 19

Optimal Capital Structure: Optimal capital structure is achieved by finding the point at which the tax benefit of an extra dollar of debt = potential cost of financial distress. This is the point of: Optimal amount of debt Maximum value of the firm Optimal debt to equity ratio Minimal cost of WACC This will obviously vary from firm to firm and takes some effort to evaluate. No single equation can guarantee profitability or even survival Keuangan Korporasi Elok Sri Utami 20

Critical considerations: Firms with greater risk of financial distress must borrow less The greater volatility in EBIT, the less a firm should borrow (magnify risk of losses) Costs of financial distress can be minimized the more easily firm assets can be liquidated to cover obligations A firm with more liquid assets may therefore have less financial risk in borrowing A firm with more proprietary assets (unique to the firm, hard to liquidate) should minimize borrowing Keuangan Korporasi Elok Sri Utami 21

KASUS 1. Beri contoh dengan menggunakan laporan keuangan salah satu perusahaan publik, hitung cost of capital ? (lampirkan laporan keuangannya 1 tahun terakhir) 2. Hitung cost of debt perusahaan ? 3. Hitung cost of equity perusahaan ? (dengan CAPM) 4. Hitung WACC ? Elok Sri utami MGT keu Internasional22