STRUKTUR PERMODALAN

1. STRUKTUR PERMODALAN Budi Purwanto

2. Saham Biasa Utang Saham Preferens Struktur Permodalan Bagaimana kita ingin mendanai perusahaan?

3. Mengapa Struktur Permodalan Penting? • 1) Leverage: pada tingkat imbalan investasi sama, makin tinggi penggunaan utang makin tinggi imbalan pemegang saham, tetapi berisiko lebih tinggi dalam hal pembayaran bunga. • 2) Biaya Modal: setiap sumber dana membebankan biaya berbeda, maka struktur permodalan mempengaruhi biaya modal. • Struktur Modal Optimal: adalah komposisi yang meminimumkan biaya modal dan memaksimumkan nilai perusahaan.

4. Hipotesis • Oleh karena nilai perusahaan didefinisikan sebagai penjumlahan nilai utang dan modal perusahaan, atau • V =B + S Jika tujuan keuangan perusahaan adalah memaksimumkan nilai perusahaan, maka perusahaan harus memilih rasio utang/modal yang memaksimumkan besar “kue” perusahaan. S B Nilai Perusahaan, V

5. Utang, Laba dan Imbalan Misalkan suatu perusahaan tak berutang mempertimbangkan untuk berutang Current Aktiva $20,000 Utang $0 Modal $20,000 Rasio Utang/Modal 0.00 Suku bunga n/a Saham beredar 400 Harga per lembar $50 Usulan $20,000 $8,000 $12,000 2/3 8% 240 $50

6. EPS dan ROE dibawah Struktur Modal Sekarang Recession Normal Booming EBIT $1,000 $2,000 $3,000 Interest 0 0 0 Net income $1,000 $2,000 $3,000 EPS $2.50 $5.00 $7.50 ROA 5% 10% 15% ROE 5% 10% 15% Current Shares Outstanding = 400 shares

7. EPS dan ROE dibawah Struktur Modal Usulan Recession Normal Booming EBIT $1,000 $2,000 $3,000 Interest 640 640 640 Net income $360 $1,360 $2,360 EPS $1.50 $5.67 $9.83 ROA 5% 10% 15% ROE 3% 11% 20% Proposed Shares Outstanding = 240 shares

8. Perbandingan EPS and ROE All-Equity Recession Normal Booming EBIT $1,000 $2,000 $3,000 Interest 0 0 0 Net income $1,000 $2,000 $3,000 EPS $2.50 $5.00 $7.50 ROA 5% 10% 15% ROE 5% 10% 15% Current Shares Outstanding = 400 shares Levered Recession Normal Booming EBIT $1,000 $2,000 $3,000 Interest 640 640 640 Net income $360 $1,360 $2,360 EPS $1.50 $5.67 $9.83 ROA 5% 10% 15% ROE 3% 11% 20% Proposed Shares Outstanding = 240 shares

9. Tingkat Utang dan EPS 12.00 Debt 10.00 8.00 No Debt Advantage to debt 6.00 Break-even point EPS 4.00 2.00 0.00 1,000 2,000 3,000 Disadvantage to debt (2.00) EBIT EBI in dollars, no taxes

10. Model Modigliani-Miller: Asumsi • Homogeneous Expectations • Homogeneous Business Risk Classes • Perpetual Cash Flows • Perfect Capital Markets: • Perfect competition • Firms and investors can borrow/lend at the same rate • Equal access to all relevant information • No transaction costs • No taxes

11. The MM Propositions I & II (No Taxes) • Proposition I • Firm value is not affected by leverage VL = VU • Proposition II • Leverage increases the risk and return to stockholders rs = r0 + (B / SL) (r0 - rB) rB is the interest rate (cost of debt) rs is the return on (levered) equity (cost of equity) r0 is the return on unlevered equity (cost of capital) B is the value of debt SL is the value of levered equity

12. The MM Proposition I (No Taxes) The derivation is straightforward: The present value of this stream of cash flows is VL The present value of this stream of cash flows is VU

13. The MM Proposition II (No Taxes) The derivation is straightforward:

14. The Cost of Equity, the Cost of Debt, and the Weighted Average Cost of Capital: MM Proposition II with No Corporate Taxes Cost of capital: r (%) r0 rB rB Debt-to-equity Ratio

15. Contoh Assume rassets is 9% and the cost of debt be 6%.

16. Example Assume rassets is 9% and the cost of debt be 6%.

17. IT’S IRRELEVANT Example Assume rassets is 9% and the cost of debt be 6%. With no taxes the WACC is the same regardless of leverage. Since we assumed that operating cash flows were also unaffected, firm value is unaffected by leverage

18. The MM Propositions I & II (with Corporate Taxes) • Proposition I (with Corporate Taxes) • Firm value increases with leverage VL = VU + TC B • Proposition II (with Corporate Taxes) • Some of the increase in equity risk and return is offset by interest tax shield rS = r0 + (B/S)×(1-TC)×(r0 - rB) rB is the interest rate (cost of debt) rS is the return on equity (cost of equity) r0 is the return on unlevered equity (cost of capital) B is the value of debt S is the value of levered equity

19. The MM Proposition I (Corp. Taxes) The present value of this stream of cash flows is VL The present value of the first term is VU The present value of the second term is TCB

20. The MM Proposition II (Corp. Taxes) Start with M&M Proposition I with taxes: Since The cash flows from each side of the balance sheet must equal: Divide both sides by S Which quickly reduces to

21. The Effect of Financial Leverage on the Cost of Debt and Equity Capital Cost of capital: r(%) r0 rB Debt-to-equityratio (B/S)

22. Total Cash Flow to Investors Under Each Capital Structure with Corp. Taxes All-equity firm Levered firm S G S G B Perusahaan berutang membayar pajak kurang dibandingkan dengan perusahaan tak berutang. Akibatnya, jumlah nilai utang dan modal perusahaan berutang menjadi lebih besar daripada tak berutang.

23. Summary: No Taxes • In a world of no taxes, the value of the firm is unaffected by capital structure. • This is M&M Proposition I: VL = VU • Prop I holds because shareholders can achieve any pattern of payouts they desire with homemade leverage. • In a world of no taxes, M&M Proposition II states that leverage increases the risk and return to stockholders

24. Summary: Taxes • In a world of taxes, but no bankruptcy costs, the value of the firm increases with leverage. • This is M&M Proposition I: VL = VU + TC B • Prop I holds because shareholders can achieve any pattern of payouts they desire with homemade leverage. • In a world of taxes, M&M Proposition II states that leverage increases the risk and return to stockholders.

25. Bankruptcy Costs • So far, we have seen M&M suggest that financial leverage does not matter, or imply that taxes cause the optimal financial structure to be 100% debt. • In the real world, most executives do not like a capital structure of 100% debt because that is a state known as “bankruptcy”. • We will introduce the notion of a limit on the use of debt: financial distress.

26. Review: Benefits of debt • Tax advantage • According to MM, the company should have as much debt as possible • Disciplining device • If a company has a lot of cash, its managers become complacent. They might start making wrong investment decisions and divert cash flows to their own benefits • Should companies have near 100% of debt? • Of course NO! • Debt has its own costs! These costs depend on the amount of debt

27. Costs of debt • Direct Costs • Legal and administrative costs (tend to be a small percentage of firm value) • Indirect Costs • Impaired ability to conduct business (e.g., lost sales) • Agency Costs • Selfish strategy 1: Incentive to take large risks • Selfish strategy 2: Incentive toward underinvestment • Selfish Strategy 3: Milking the property

28. Agency theory • An agency relationship exists whenever a principal hires an agent to act on their behalf • Within a corporation, agency relationships exist between: • Shareholders and managers • Shareholders and creditors

29. Shareholders versus managers • Managers are naturally inclined to act in their own best interests • But the following factors affect managerial behavior: • Managerial compensation plans • Direct intervention by shareholders • The threat of firing • The threat of takeover • As a managers’ disciplining device debt is good!

30. Shareholders versus creditors • Shareholders (through managers) could take actions to maximize stock price that are detrimental to creditors • Creditors take this into account, when lending money • Therefore, In the long run, such actions will raise the cost of debt and ultimately lower stock price

31. Capital structure and agency costs • Distortions in investment strategies due to shareholders/debtholders conflict • Debt overhang problem: • Pre-existing debt distorts the payoff from a new project to shareholders • Results in underinvestment, because existing debt precludes from undertaking a good project) • Asset substitution problem • Results in investment into too risky projects • Shortsighted investment • Reluctance to liquidate when liquidation is optimal

32. Agency cost of debt • Debtholders know about shareholders opportunistic behavior • They require higher interest rate • Positive NPV projects are not undertaken - this is called the “agency cost of debt” • Possible remedy - convertible debt • Convertible debt gives creditors the right to convert debt into shares to reap the benefits from a good outcome

33. Mitigating incentive problems • Covenants • Issuing more short-term than long-term debt • Potential problem - higher exposure to interest rate risk • Use of convertible bonds • Giving right incentives to the managers

34. Value of Stock MM result Actual No leverage D/V 0 D1 D2

35. Cost of capital and EPS % ks 15 WACC kd(1 – T) D/V 0 .25 .50 .75 $ P0 EPS D/V .25 .50

36. Signaling • Signal is a message credibly conveying information from informed to uninformed players • It is credible • if it is in the player’s interest to tell the truth • it is too costly to mimic (to lie) by others

37. Capital structure and signaling • Assumptions: • Managers have better information about a firm’s long-run value than outside investors • Managers act in the best interests of current stockholders • Managers can be expected to: • Issue stock if they think stock is overvalued • Issue debt if they think stock is undervalued • As a result, investors view a common stock offering as a negative signal -- managers think stock is overvalued

38. Capital structure and signaling (2) • Signaling theory, suggests firms should use less debt than MM suggest • This unused debt capacity helps avoid stock sales, which depress P0 because of signaling effects

39. The Pecking-Order Theory • Theory stating that firms prefer to issue debt rather than equity if internal finance is insufficient • Rule 1: Use internal financing first • Rule 2: Issue debt next, equity last • According to the pecking-order theory: • There is no target D/E ratio • Profitable firms use less debt (they use self-financing instead) • Companies like financial slack

40. How Firms Establish Capital Structure? • Most corporations have low D/V Ratios • Changes in leverage affect firm Value • Stock price increases with increases in leverage and vice-versa; this is consistent with M&M with taxes • Another interpretation is that firms signal good news when they lever up • Capital structure varies across Industries • There is some evidence that firms behave as if they had a target D/E ratio

41. Factors in Target D/E Ratio • Taxes • If corporate tax rates are higher than bondholder tax rates, there is an advantage to debt • Types of assets • The costs of financial distress depend on the types of assets the firm has • Uncertainty of operating Income • Even without debt, firms with uncertain operating income have high probability of experiencing financial distress • Pecking order and financial slack • Theory stating that firms prefer to issue debt rather than equity if internal finance is insufficient

42. Long-term debt ratios (D/V) forselected industries IndustryBookMarket Pharmaceuticals 27.4% 7.34% Computers 24.75% 7.46% Steel 32.88% 14.61% Aerospace 46.32% 23.25% Airlines 71.88% 32.86% Electr. Utilities 61.74% 47.71% Auto & Truck 81.52%65.51% Internet 18.57% 2.18% Educational services 12.97% 2.24% Source: Bloomberg, January 2005 (collected by Aswath Damodaran (NYU))

43. Summary and Conclusions • Costs of financial distress cause firms to restrain their issuance of debt • Direct costs • Lawyers’ and accountants’ fees • Indirect Costs • Impaired ability to conduct business • Incentives to take on risky projects • Incentives to underinvest • Incentive to milk the property • Three techniques to reduce these costs are: • Protective covenants • Repurchase of debt prior to bankruptcy • Consolidation of debt

44. Summary and Conclusions • Because costs of financial distress can be reduced but not eliminated, firms will not finance entirely with debt Value of firm underMM with corporatetaxes and debt Value of firm (V) Present value of taxshield on debt VL = VU + TCB Maximumfirm value Present value offinancial distress costs V = Actual value of firm VU = Value of firm with no debt 0 Debt (B) B* Optimal amount of debt

45. Agency Cost of Equity Agency Cost of Debt Summary and Conclusions • If distributions to equity holders are taxed at a lower effective personal tax rate than interest, the tax advantage to debt at the corporate level is partially offset. In fact, the corporate advantage to debt is eliminated if (1-TC) × (1-TS) = (1-TB) Value of firm underMM with corporatetaxes and debt Present value offinancial distress costs Value of firm (V) Present value of taxshield on debt VL = VU + TCB VL < VU + TCB when TS < TB but (1-TB) > (1-TC)×(1-TS) Maximumfirm value VU = Value of firm with no debt V = Actual value of firm 0 Debt (B) B* Optimal amount of debt