STRUKTUR PERMODALAN

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Struktur Permodalan

Bagaimana kita ingin mendanai perusahaan?

UtangSaham PreferensSaham Biasa

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.

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Hipotesis

• Oleh karena nilai perusahaan didefinisikan sebagai penjumlahan nilai utang dan modal perusahaan, atau

• V = B + S

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Nilai Perusahaan, V

S B

Jika tujuan keuangan perusahaan adalah memaksimumkan nilai perusahaan, maka perusahaan harus memilih rasio utang/modal yang memaksimumkan besar “kue” perusahaan.

Utang, Laba dan Imbalan

CurrentAktiva $20,000Utang $0Modal $20,000Rasio Utang/Modal 0.00Suku bunga n/aSaham beredar 400Harga per lembar $50

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Usulan

$20,000

$8,000

$12,000

2/3

8%

240

$50

Misalkan suatu perusahaan tak berutang mempertimbangkan untuk berutang

EPS dan ROE dibawah Struktur Modal Sekarang

Recession Normal BoomingEBIT $1,000 $2,000 $3,000Interest 0 0 0Net income $1,000 $2,000 $3,000EPS $2.50 $5.00 $7.50ROA 5% 10% 15%ROE 5% 10% 15%

Current Shares Outstanding = 400 shares

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EPS dan ROE dibawah Struktur Modal Usulan

Recession Normal BoomingEBIT $1,000 $2,000 $3,000Interest 640 640 640Net income $360 $1,360 $2,360EPS $1.50 $5.67 $9.83ROA 5% 10% 15%ROE 3% 11% 20%

Proposed Shares Outstanding = 240 shares

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Perbandingan EPS and ROE

LeveredRecession Normal Booming

EBIT $1,000 $2,000 $3,000Interest 640 640 640Net income $360 $1,360 $2,360EPS $1.50 $5.67 $9.83ROA 5% 10% 15%ROE 3% 11% 20%

Proposed Shares Outstanding = 240 shares8

All-EquityRecession Normal Booming

EBIT $1,000 $2,000 $3,000Interest 0 0 0Net income $1,000 $2,000 $3,000EPS $2.50 $5.00 $7.50ROA 5% 10% 15%ROE 5% 10% 15%Current Shares Outstanding = 400 shares

Tingkat Utang dan EPS

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(2.00)

0.00

2.00

4.00

6.00

8.00

10.00

12.00

1,000 2,000 3,000

EP

S

Debt

No Debt

Break-even point

EBI in dollars, no taxes

Advantage to debt

Disadvantage to debt EBIT

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

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The MM Propositions I & II (No Taxes)• Proposition I

– Firm value is not affected by leverageVL = 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 debtSL is the value of levered equity

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The MM Proposition I (No Taxes)

12UL VV

BrEBIT Breceive firm levered ain rsShareholde

BrB

receive sBondholderThe derivation is straightforward:

BrBrEBIT BB )(

is rsstakeholde all toflowcash total theThus,

The present value of this stream of cash flows is VL

EBITBrBrEBIT BB )(

Clearly

The present value of this stream of cash flows is VU

The MM Proposition II (No Taxes)

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The derivation is straightforward:

SBWACC rSB

Sr

SB

Br

0set Then rrWACC

0rrSB

Sr

SB

BSB

S

SB by sidesboth multiply

0rS

SBr

SB

S

S

SBr

SB

B

S

SBSB

0rS

SBrr

S

BSB

00 rrS

Brr

S

BSB )( 00 BS rr

S

Brr

The Cost of Equity, the Cost of Debt, and the Weighted Average Cost of Capital: MM Proposition II

with No Corporate Taxes

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Debt-to-equity Ratio

Cos

t of

capi

tal:

r (%

)

r0

rB

SBWACC rSB

Sr

SB

Br

)( 00 BL

S rrS

Brr

rB

S

B

15

L = B/S Equity WACC

0.00 9.00 9.00

Assume rAssume rassetsassets is 9% and the cost of debt be is 9% and the cost of debt be 6%.6%.

ContohContoh

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Cost of

L = B/S Equity WACC

0.00 9.00 9.000.50 10.50 9.00

Assume rAssume rassetsassets is 9% and the cost of debt be is 9% and the cost of debt be 6%.6%.

ExampleExample

IT’S IRRELEVANT

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Cost of

L = B/S Equity WACC

0.00 9.00 9.000.50 10.50 9.001.00 12.00 9.001.50 13.50 9.002.00 15.00 9.003.00 18.00 9.00

Assume rAssume rassetsassets is 9% and the cost of debt be is 9% and the cost of debt be 6%.6%.

With no taxes the WACC is the same With no taxes the WACC is the same regardless of leverage. Since we assumed regardless of leverage. Since we assumed that operating cash flows were also that operating cash flows were also unaffected, firm value is unaffected by unaffected, firm value is unaffected by leverageleverage

ExampleExample

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 debtS is the value of levered equity

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The MM Proposition I (Corp. Taxes)

19BTVV CUL

)1()(

receive firm levered ain rsShareholde

CB TBrEBIT BrB

receive sBondholder

BrTBrEBIT BCB )1()(

is rsstakeholde all toflowcash total theThus,

The present value of this stream of cash flows is VL

BrTBrEBIT BCB )1()(Clearly

The present value of the first term is VU

The present value of the second term is TCB

BrTBrTEBIT BCBC )1()1(

BrBTrBrTEBIT BCBBC )1(

The MM Proposition II (Corp. Taxes)

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Start with M&M Proposition I with taxes:

)()1( 00 BCS rrTS

Brr

BTVV CUL

Since BSVL

The cash flows from each side of the balance sheet must equal:

BCUBS BrTrVBrSr 0

BrTrTBSBrSr BCCBS 0)]1([

Divide both sides by S

BCCBS rTS

BrT

S

Br

S

Br 0)]1(1[

BTVBS CU

)1( CU TBSV

Which quickly reduces to

The Effect of Financial Leverage on the Cost of Debt and Equity Capital

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Debt-to-equityratio (B/S)

Cost of capital: r(%)

r0

rB

)()1( 00 BCL

S rrTS

Brr

SL

LCB

LWACC r

SB

STr

SB

Br

)1(

Total Cash Flow to Investors Under Each Capital Structure with Corp. Taxes

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Perusahaan berutang membayar pajak kurang dibandingkan dengan perusahaan tak berutang.

Akibatnya, jumlah nilai utang dan modal perusahaan berutang menjadi lebih besar daripada tak berutang.

S G S G

B

All-equity firm Levered firm

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

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)( 00 BL

S rrS

Brr

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.

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)()1( 00 BCL

S rrTS

Brr

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.

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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

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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

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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

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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!

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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

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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

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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

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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

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34

Value of Stock

0 D1 D2

D/V

MM result

Actual

No leverage

Cost of capital and EPS

35

%

15

0 .25 .75.50 D/V

ks

WACCkd(1 – T)

$

D/V.25 .50

P0

EPS

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

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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

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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

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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

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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 ratio40

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

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Long-term debt ratios (D/V) forselected industries

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Industry Book MarketPharmaceuticals 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))

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

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Summary and Conclusions• Because costs of financial distress can be

reduced but not eliminated, firms will not finance entirely with debt

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Debt (B)

Value of firm (V)

0

Present value of taxshield on debt

Present value offinancial distress costs

Value of firm underMM with corporatetaxes and debt

VL = VU + TCB

V = Actual value of firm

VU = Value of firm with no debt

B*

Maximumfirm value

Optimal amount 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)

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Debt (B)

Value of firm (V)

0

Present value of taxshield on debt

Present value offinancial distress costs

Value of firm underMM with corporatetaxes and debt

VL = VU + TCB

V = Actual value of firm

VU = Value of firm with no debt

B*

Maximumfirm value

Optimal amount of debt

VL < VU + TCB when TS < TB but (1-TB) > (1-TC)×(1-TS)

Agency Cost of Equity Agency Cost of Debt