BIAYA MODAL (COST OF CAPITAL)

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JIKA ANDA SEORANG
MANAJER KEUANGAN
 Apa yang anda lakukan untuk mengatur
Biaya Modal dan mengapa Biaya Modal i
tu penting?
 Keputusan penting Apa yang akan anda
ambil terkait dengan Biaya Modal?
 Bagaimana Anda menghitung Biaya Mo
dal?

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 KONSEP BIAYA MODAL
• Modal adalah dana yang digunakan untuk membayai aktiva dan
oerasi perusahaan. Modal terdiri dari hutang, saham biasa, saha
m preferen, dan laba ditahan. Perhitungan biaya penggunaan m
odal sangatlah penting, dengan alasan:
– Memaksimalkan nilai perusahaan mengharuskan biaya-biaya (term
asuk biaya modal) diminimumkan.
– Keputusan penggagaran modal (capital budgetting) memerlukan su
atu estimasi tentang biaya modal.
– Keputusam-keputusan lain seperti leasing, modal kerja juga memer
lukan estimasi biaya modal.

sylvalifr@feb.unair.ac.id 9-3
 KONSEP BIAYA MODAL
 Biaya modal sebuah perusahaan bertindak sebagai penghubung antara ke
putusan pembiayaan dan investasinya. Biaya modal menjadi tingkat batas
an yang harus dicapai oleh sebuah investasi sebelum meningkatkan kekay
aan pemiliknya.
 Dapat pula diartikan bahwa biaya modal suatu perusahaan adalah bagian
(suku rate) yang harus dikeluarkan perusahaan untuk memberi kepuasan
pada para investornya pada tingkat risiko tertentu.
 Jika investasi itu tidak dapat menghasilkan laba investasi sekurang-kurang
nya sebesar biaya yang ditanggung maka investasi itu tidak perlu dilakuka
n.

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 Biaya modal keseluruhan ini kita sebut sebagai biaya modal rata-rata terti
mbang (weight average cost of capital). Ini merupakan biaya rata-rata ter
timbang setelah pajak dari sumber-sumber modal yang digunakan perusa
haan untuk mendanai proyek di mana bobotnya mencerminkan proporsi d
ari pendanaan total yang digalang bagi masing-masing sumber.
 Akibatnya, biaya modal rata-rata tertimbang merupakan tingkat pengem
balian yang harus didapatkan perusahaan atas investasinya supaya dapat
mengkompensasi kreditor maupun pemegang sahamnya menurut tingkat
pengembalian yang mereka harapkan.

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• Biaya modal yang tepat untuk semua keputusan adalah ra
ta-rata tertimbang dari seluruh komponen modal (Weighte
d Cost of Capital atau WACC)
• Pada umumnya hutang jangka panjang dari modal sendiri
merupakan unsur untuk menghitung WACC. Dengan demi
kian kita harus menghitung: 1) Biaya Hutang (cost of debt
), 2) Biaya laba ditahan (cost of retained earning), 3) Biay
a saham Biasa Baru (cost of new common stock), dan 4)
Biaya Saham Preferen (cost of preferred stock). Biaya mo
dal harus dihitung berdasarkan suatu basis setelah pajak (
after tax basis) karena arus kas setelah pajak adalah yang
paling relefan untuk keputusan investasi.

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CHAPTER 9
The Cost of Capital

 Sources of capital
 Component costs
 WACC
 Adjusting for flotation costs
 Adjusting for risk
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 What sources of long-term capit
al do firms use?

Long-Term Capital

Long-Term Debt Preferred Stock Common Stock

Retained Earnings New Common Stock

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Calculating the weighted averag
e cost of capital

WACC = wdkd(1-T) + wpkp + wcks

 The w’s refer to the firm’s capital struct

ure weights.
 The k’s refer to the cost of each compo
nent.

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Should our analysis focus on before
-tax or after-tax capital costs?

 Stockholders focus on A-T CFs. Therefo

re, we should focus on A-T capital costs,
i.e. use A-T costs of capital in WACC. O
nly kd needs adjustment, because intere
st is tax deductible.

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Should our analysis focus on historica
l (embedded) costs or new (marginal)
costs?

 The cost of capital is used primarily to

make decisions that involve raising new
capital. So, focus on today’s marginal
costs (for WACC).

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How are the weights determined?

WACC = wdkd(1-T) + wpkp + wcks

 Use accounting numbers or market valu

e (book vs. market weights)?
 Use actual numbers or target capital str
ucture?

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Component cost of debt
WACC = wdkd(1-T) + wpkp + wcks

 kd is the marginal cost of debt capital.

 The yield to maturity on outstanding L
-T debt is often used as a measure of
kd.
 Why tax-adjust, i.e. why kd(1-T)?
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 A 15-year, 12% semiannual coupon
bond sells for $1,153.72. What is th
e cost of debt (kd)?
 Remember, the bond pays a semiannual
coupon, so kd = 5.0% x 2 = 10%.

INPUTS 30 -1153.72 60 1000

N I/YR PV PMT FV
OUTPUT 5

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Component cost of debt
 Interest is tax deductible, so
A-T kd = B-T kd (1-T)
= 10% (1 - 0.40) = 6%
 Use nominal rate.
 Flotation costs are small, so ignore the
m.

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Component cost of preferred stoc
k
WACC = wdkd(1-T) + wpkp + wcks

 kp is the marginal cost of preferred sto

ck.
 The rate of return investors require on
the firm’s preferred stock.

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BIAYA EKUITAS (COST OF (EQUI
TY)
 Biaya ekuitas adalah tingkat pengembalian yang d
iharuskan oleh para investor ekuitas pada investa
si mereka di perusahaan.
 Dua metode untuk mengestimasikan biaya modal
ekuitas perusahaan :
(1) Model pertumbuhan dividen (dividend growt
h model)
(2) Metode penentuan harga aset modal (Capital
Asset Pricing Model).

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What is the cost of preferred stoc
k?
 The cost of preferred stock can be solve
d by using this formula:

kp = Dp / Pp
= $10 / $111.10
= 9%

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Component cost of preferred stoc
k
 Preferred dividends are not tax-deducti
ble, so no tax adjustments necessary. J
ust use kp.
 Nominal kp is used.
 Our calculation ignores possible flotatio
n costs.

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Is preferred stock more or less ris
ky to investors than debt?
 More risky; company not required to pa
y preferred dividend.
 However, firms try to pay preferred divi
dend. Otherwise, (1) cannot pay comm
on dividend, (2) difficult to raise additio
nal funds, (3) preferred stockholders m
ay gain control of firm.

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Why is the yield on preferred stoc
k lower than debt?
 Corporations own most preferred stock, beca
use 70% of preferred dividends are nontaxabl
e to corporations.
 Therefore, preferred stock often has a lower
B-T yield than the B-T yield on debt.
 The A-T yield to an investor, and the A-T cost
to the issuer, are higher on preferred stock th
an on debt. Consistent with higher risk of pre
ferred stock.
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Illustrating the differences between
A-T costs of debt and preferred stock
Recall, that the firm’s tax rate is 40%, and it
s before-tax costs of debt and preferred stock
are kd = 10% and kp = 9%, respectively.

A-T kp = kp – kp (1 – 0.7)(T)
= 9% - 9% (0.3)(0.4) = 7.92%
A-T kd = 10% - 10% (0.4) = 6.00%

A-T Risk Premium on Preferred = 1.92%

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Component cost of equity
WACC = wdkd(1-T) + wpkp + wcks

 ks is the marginal cost of common equ

ity using retained earnings.
 The rate of return investors require on
the firm’s common equity using new e
quity is ke.

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 Why is there a cost for retaine
d earnings?
 Earnings can be reinvested or paid out as di
vidends.
 Investors could buy other securities, earn a r
eturn.
 If earnings are retained, there is an opportu
nity cost (the return that stockholders could
earn on alternative investments of equal ris
k).
 Investors could buy similar stocks and earn ks.
 Firm could repurchase its own stock and earn ks.
 Therefore, ks is the cost of retained earnings.
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Three ways to determine the c
ost of common equity, ks
Capital Asset Pricing Model
 CAPM: ks = kRF + (kM – kRF) β

Discounted Cash Flow

 DCF: ks = D1 / P0 + g
 Own-Bond-Yield-Plus-Risk Premium:

ks = kd + RP

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If the kRF = 7%, RPM = 6%, and the firm’
s beta is 1.2, what’s the cost of common
equity based upon the CAPM?

ks = kRF + (kM – kRF) β

= 7.0% + (6.0%)1.2 = 14.2%

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If D0 = $4.19, P0 = $50, and g = 5%, wh
at’s the cost of common equity based upo
n the DCF approach?

D1 = D0 (1+g)
D1 = $4.19 (1 + .05)
D1 = $4.3995

ks = D1 / P0 + g
= $4.3995 / $50 + 0.05
= 13.8%
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What is the expected future growth rate?
 The firm has been earning 15% on equity (R
OE = 15%) and retaining 35% of its earnings
(dividend payout = 65%). This situation is ex
pected to continue.

g = ( 1 – Payout ) (ROE)
= (0.35) (15%)
= 5.25%

 Very close to the g that was given before.

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Can DCF methodology be applied if g
rowth is not constant?

 Yes, nonconstant growth stocks are exp

ected to attain constant growth at some
point, generally in 5 to 10 years.
 May be complicated to compute.

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If kd = 10% and RP = 4%, what is ks usin
g the own-bond-yield-plus-risk-premium
method?
 This RP is not the same as the CAPM RP
M.
 This method produces a ballpark estima
te of ks, and can serve as a useful check
.

ks = kd + RP
ks = 10.0% + 4.0% = 14.0%
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What is a reasonable final estimat
e of ks?
Method Estimate
CAPM 14.2%
DCF 13.8%
kd + RP 14.0%
Average 14.0%

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Why is the cost of retained earnings chea
per than the cost of issuing new common
stock?
 When a company issues new common stoc
k they also have to pay flotation costs to th
e underwriter.
 Issuing new common stock may send a neg
ative signal to the capital markets, which m
ay depress the stock price.

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If issuing new common stock incurs a flot
ation cost of 15% of the proceeds, what i
s ke?

D 0 (1  g)
ke  g
P0 (1 - F)
$4.19(1.05)
  5.0%
$50(1- 0.15)
$4.3995
  5.0%
$42.50
 15.4%
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Flotation costs
 Flotation costs depend on the risk of the firm
and the type of capital being raised.
 The flotation costs are highest for common e
quity. However, since most firms issue equity
infrequently, the per-project cost is fairly smal
l.
 We will frequently ignore flotation costs when
calculating the WACC.

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 Ignoring floatation costs, what is th
e firm’s WACC?

WACC = wdkd(1-T) + wpkp + wcks

= 0.3(10%)(0.6) + 0.1(9%) + 0.6(14%)
= 1.8% + 0.9% + 8.4%
= 11.1%

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What factors influence a comp
any’s composite WACC?
 Market conditions.
 The firm’s capital structure and divid
end policy.
 The firm’s investment policy. Firms
with riskier projects generally have a
higher WACC.

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Should the company use the composit
e WACC as the hurdle rate for each of
its projects?
 NO! The composite WACC reflects the risk
of an average project undertaken by the fir
m. Therefore, the WACC only represents th
e “hurdle rate” for a typical project with a
verage risk.
 Different projects have different risks. The
project’s WACC should be adjusted to refl
ect the project’s risk.

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 Risk and the Cost of Capital
Rate of Return
(%) Acceptance Region

WACC

12.0 H

10.5 A Rejection Region

10.0
9.5 B
8.0 L

Risk
0 RiskL RiskA RiskH

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What are the three types of proje
ct risk?
 Stand-alone risk
 Corporate risk
 Market risk

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How is each type of risk used?
 Market risk is theoretically best in most
situations.
 However, creditors, customers, supplier
s, and employees are more affected by
corporate risk.
 Therefore, corporate risk is also relevan
t.

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Problem areas in cost of capital
 Depreciation-generated funds
 Privately owned firms
 Measurement problems
 Adjusting costs of capital for differen
t risk
 Capital structure weights

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How are risk-adjusted costs of capita
l determined for specific projects or
divisions?
 Subjective adjustments to the firm’s com
posite WACC.
 Attempt to estimate what the cost of capit
al would be if the project/division were a st
and-alone firm. This requires estimating th
e project’s beta.

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Finding a divisional cost of capital:
Using similar stand-alone firms to estimat
e a project’s cost of capital
 Comparison firms have the following c
haracteristics:
 Target capital structure consists of 40% d
ebt and 60% equity.
 kd = 12%
 kRF = 7%
 RPM = 6%
 βDIV = 1.7
 Tax rate = 40%
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 Calculating a divisional cost of capital

 Division’s required return on equity

 ks = kRF + (kM – kRF)β
= 7% + (6%)1.7 = 17.2%
 Division’s weighted average cost of capital
 WACC = wd kd ( 1 – T ) + wc ks
= 0.4 (12%)(0.6) + 0.6 (17.2%) =13.2%
 Typical projects in this division are acceptabl
e if their returns exceed 13.2%.
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