Chapter 11 - Chapter 12 - Capital Budgeting and Risk Analysis

Chapter 11 - Capital Budgeting
and Risk Analysis
Chapter 12 - Cost of Capital
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Tujuan Pembelajaran 1
Mahasiswa mampu untuk:
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Menjelaskan pengukuran risiko yang tepat
untuk tujuan penganggara modal
Menetapkan akseptabilitas dari suatu proyek
baru dengan menggunakan baik metode
certainty equivalent maupun metode riskadjusted discount risk
Menjelaskan penggunaan simulasi dan pohon
probabilitas untuk mengimitasi kinerja proyek
yang sedang dievaluasi
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Pokok Bahasan 1
Risiko dan keputusan investasi
Metode-metode untuk memasukkan risiko
ke dalam penganggaran modal
Pendekatan lain untuk mengevaluasi risiko
dalam penganggaran modal
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Tujuan Pembelajaran 2
Mahasiswa mampu untuk:
Menjelaskan konsep yang mendasari biaya modal
perusahaan dan tujuan perhitungannya
Menghitung biaya modal setelah pajak untuk hutang,
saham preferen dan saham biasa, serta biaya modal
rata-rata tertimbang suatu perusahaan
Menjelaskan prosedur untuk menaksir biaya modal
pada perusahaan yang memiliki banyak divisi
Menggunakan biaya modal untuk mengevaluasi
investasi baru
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Pokok Bahasan 2
Biaya Modal: Definisi dan Konsep kunci
Menghitung biaya modal individual
Biaya modal rata-rata tertimbang
Menghitung Biaya Modal Divisi: Kasus
Pepsico, Inc.
Menggunakan cost of capital perusahaan
untuk mengevaluasi investasi baru
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Three Measures of a Project’s Risk
Project Standing
Alone Risk
Project’s
Contributionto-Firm Risk
Systematic Risk
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Risk
diversified away
within firm as this
project is combined
with firm’s other
projects and assets.
Risk
diversified away
by shareholders as
securities are combined
to form diversified
portfolio.
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Incorporating Risk into
Capital Budgeting
Two Methods:
Certainty Equivalent Approach
Risk-Adjusted Discount Rate
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How can we adjust this model to
take risk into account?
n
NPV =
S
FCFt
(1 + k) t
- IO
t=1
Adjust the After-tax Cash Flows (ACFs),
or
Adjust the discount rate (k).
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Certainty Equivalent Approach
Adjusts the risky after-tax cash flows
to certain cash flows.
The idea:
Risky
Cash
Flow
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X
Certainty
Equivalent
Factor (a)
Certain
= Cash
Flow
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Certainty Equivalent Approach
Risky
Cash X
Flow
Risky
$1000
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Certainty
Equivalent
Factor (a)
.95
=
Certain
Cash
Flow
“safe”
$950
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The greater the risk associated
with a particular cash flow,
the smaller the CE factor.
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Certainty Equivalent Method
n
NPV =
S
t ACFt
IO
(1 + krf) t
t=1
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Certainty Equivalent Approach
Steps:
1) Adjust all after-tax cash flows by
certainty equivalent factors to get
certain cash flows.
2) Discount the certain cash flows by
the risk-free rate of interest.
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Incorporating Risk into
Capital Budgeting
Risk-Adjusted Discount Rate
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How can we adjust this model
to take risk into account?
n
NPV =
S
ACFt
(1 + k) t
- IO
t=1
Adjust the discount rate (k).
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Risk-Adjusted Discount Rate
Simply adjust the discount rate (k)
to reflect higher risk.
Riskier projects will use higher
risk-adjusted discount rates.
Calculate NPV using the new riskadjusted discount rate.
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Risk-Adjusted Discount Rate
n
NPV =
S
FCFt
IO
t
(1 + k*)
t=1
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Risk-Adjusted Discount Rates
How do we determine the
appropriate risk-adjusted discount
rate (k*) to use?
Many firms set up risk classes to
categorize different types of
projects.
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Risk Classes
Risk RADR
Class (k*)
1
12%
2
3
4
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14%
16%
24%
Project Type
Replace equipment,
Expand current business
Related new products
Unrelated new products
Research & Development
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Summary: Risk and
Capital Budgeting
You can adjust your capital budgeting
methods for projects having different levels
of risk by:
Adjusting the discount rate used (riskadjusted discount rate method),
Measuring the project’s systematic risk,
Analyzing computer simulation methods,
Performing scenario analysis, and
Performing sensitivity analysis.
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Chapter 12 - Cost of Capital
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 2005, Pearson Prentice Hall
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Where we’ve been...
Basic Skills: (Time value of money,
Financial Statements)
Investments: (Stocks, Bonds, Risk and
Return)
Corporate Finance: (The Investment
Decision - Capital Budgeting)
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The investment decision
Assets
Current Assets
Fixed Assets
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Liabilities & Equity
Current Liabilities
Long-term Debt
Preferred Stock
Common Equity
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Where we’re going...
Corporate Finance: (The Financing
Decision)
Cost of capital
Leverage
Capital Structure
Dividends
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The financing decision
Assets
Current Assets
Fixed Assets
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Liabilities & Equity
Current Liabilities
Long-term Debt
Preferred Stock
Common Equity
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Assets
Current assets
Capital Structure
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Liabilities & Equity
Current Liabilities
Long-term Debt
Preferred Stock
Common Equity
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Ch. 12 - Cost of Capital
For Investors, the rate of return on a
security is a benefit of investing.
For Financial Managers, that same
rate of return is a cost of raising funds
that are needed to operate the firm.
In other words, the cost of raising
funds is the firm’s cost of capital.
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How can the firm raise capital?
Bonds
Preferred Stock
Common Stock
Each of these offers a rate of return to
investors.
This return is a cost to the firm.
“Cost of capital” actually refers to the
weighted cost of capital - a weighted
average cost of financing sources.
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Cost of
Debt
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Cost of Debt
For the issuing firm, the cost
of debt is:
the rate of return required
by investors,
adjusted for flotation costs
(any costs associated with
issuing new bonds), and
adjusted for taxes.
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Example: Tax effects
of financing with debt
EBIT
- interest expense
EBT
- taxes (34%)
EAT
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with stock
400,000
0
400,000
(136,000)
264,000
with debt
400,000
(50,000)
350,000
(119,000)
231,000
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Example: Tax effects
of financing with debt
EBIT
- interest expense
EBT
- taxes (34%)
EAT
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with stock
400,000
0
400,000
(136,000)
264,000
with debt
400,000
(50,000)
350,000
(119,000)
231,000
Now, suppose the firm pays $50,000 in
dividends to the stockholders.
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Example: Tax effects
of financing with debt
with stock
EBIT
400,000
- interest expense
0
EBT
400,000
- taxes (34%)
(136,000)
EAT
264,000
- dividends
(50,000)
Retained earnings
214,000
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with debt
400,000
(50,000)
350,000
(119,000)
231,000
0
231,000
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After-tax
Before-tax
% cost of = % cost of
Debt
Debt
Kd
.066
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=
=
x
1
Marginal
- tax
rate
kd (1 - T)
.10 (1 - .34)
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Example: Cost of Debt
Prescott Corporation issues a $1,000
par, 20 year bond paying the market
rate of 10%. Coupons are
semiannual. The bond will sell for par
since it pays the market rate, but
flotation costs amount to $50 per
bond.
What is the pre-tax and after-tax cost
of debt for Prescott Corporation?
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Pre-tax cost of debt: (using TVM)
P/Y = 2
N = 40
PMT = -50
FV = -1000
So, a 10% bond
PV = 950
costs the firm
solve: I = 10.61% = kd only 7% (with
After-tax cost of debt:
flotation costs)
Kd = kd (1 - T)
since the interest
Kd = .1061 (1 - .34)
is tax deductible.
= .07 = 7%
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Cost of Preferred Stock
Finding the cost of preferred stock
is similar to finding the rate of
return (from Chapter 8), except
that we have to consider the
flotation costs associated with
issuing preferred stock.
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Cost of Preferred Stock
Recall:
kp =
D
Po
=
Dividend
Price
From the firm’s point of view:
kp =
D
NPo
=
Dividend
Net Price
NPo = price - flotation costs!
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Example: Cost of Preferred
If Prescott Corporation issues
preferred stock, it will pay a
dividend of $8 per year and
should be valued at $75 per share.
If flotation costs amount to $1 per
share, what is the cost of
preferred stock for Prescott?
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Cost of Preferred Stock
D
kp =
NPo
=
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8.00
74.00
=
Dividend
Net Price
=
10.81%
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Cost of Common Stock
There are two sources of Common Equity:
1) Internal common equity (retained
earnings).
2) External common equity (new common
stock issue).
Do these two sources have the same cost?
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Cost of Internal Equity
Since the stockholders own the firm’s
retained earnings, the cost is simply
the stockholders’ required rate of
return.
Why?
If managers are investing
stockholders’ funds, stockholders will
expect to earn an acceptable rate of
return.
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Cost of Internal Equity
1) Dividend Growth Model
D1
kc =
Po
+g
2) Capital Asset Pricing Model (CAPM)
kj = krf + b j (km - krf )
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Cost of External Equity
Dividend Growth Model
D1
knc = NPo + g
Net proceeds to the firm
after flotation costs!
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Weighted Cost of Capital
The weighted cost of capital is just
the weighted average cost of all of
the financing sources.
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Weighted Cost of Capital
Source
debt
preferred
common
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Cost
6%
10%
16%
Capital
Structure
20%
10%
70%
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Weighted Cost of Capital
(20% debt, 10% preferred, 70% common)
Weighted cost of capital =
.20 (6%) + .10 (10%) + .70 (16%)
= 13.4%
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Penutup
Tugas
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