BIAYA MODAL PART 1-FARFIN CLASS

Summary

This video explains the concept of capital costs, covering both the sources of funding for business ventures—bank loans and investors—and the costs associated with them. It delves into individual cost of capital (debt, preferred stock, and common stock) and weighted average cost of capital (WACC). Practical examples are provided for calculating the costs using formulas related to debt, bonds, and preferred stock. The tutorial also introduces key terms like 'expected return' and offers insights into financial decision-making in business investments. Future videos will explore further topics on capital costs.

Takeaways

• 😀 The cost of capital refers to the expense a company incurs to obtain funds for business operations or investment.
• 😀 Capital can be sourced from two main avenues: bank loans or investors, with both involving different costs and expectations.
• 😀 The cost of capital can be broken down into individual cost of capital (CofC) and weighted average cost of capital (WACC).
• 😀 WACC represents the total cost of all types of capital combined, weighted according to their contribution to the company.
• 😀 The cost of debt (KD) is determined by interest rates on loans or bonds, adjusted by the tax rate to find the effective cost.
• 😀 For a bank loan, the cost of debt formula is KD * (1 - tax rate), which lowers the cost after taxes.
• 😀 Bonds also have a cost of debt, calculated using the bond's coupon rate, nominal value, and net sales price.
• 😀 The cost of capital for bonds must be adjusted for taxes and other factors like issuance costs and bond duration.
• 😀 Preferred stock cost (KPS) is calculated by dividing the dividend of preferred stock by its price.
• 😀 Examples given show practical calculations for cost of debt (14%) and bond issuance (12.6%), as well as preferred stock (25%) costs.

Q & A

What is the main concept of 'Biaya Modal' or Cost of Capital discussed in the video?

The main concept of 'Biaya Modal' (Cost of Capital) refers to the cost a company incurs to acquire funds necessary for its operations or investments, which can be sourced from debt or equity.

What are the two primary sources of capital mentioned in the video?

The two primary sources of capital are bank loans (debt) and investor funding (equity).

How is the Cost of Debt (KD) calculated according to the video?

Cost of Debt (KD) is calculated using the formula: KD * (1 - tax rate). The interest rate from the loan is adjusted by the tax effect.

What is the formula to calculate the effective Cost of Debt when issuing bonds?

The formula to calculate the effective Cost of Debt when issuing bonds is: KD = (Coupon Payment + (Nominal Value - Net Proceeds) / N) / ((Nominal Value + Net Proceeds) / 2), where 'Coupon Payment' is the interest paid, 'Nominal Value' is the face value of the bond, 'Net Proceeds' is the actual funds raised after expenses, and 'N' is the bond's duration.

What is WACC and how does it relate to the different costs of capital?

WACC (Weighted Average Cost of Capital) is the total cost of capital for a company, taking into account the costs of debt, preferred stock, and equity, weighted by their respective proportions in the company's capital structure.

What is the difference between Cost of Capital (C), Cost of Debt (KD), and WACC?

Cost of Capital (C) is a broad term referring to all costs of obtaining funds, while Cost of Debt (KD) specifically refers to the cost associated with borrowing money. WACC is the combined average cost of all types of capital, weighted by the proportion of each in the company’s capital structure.

How does the video explain the calculation for the Cost of Debt in the case of a bank loan?

For a bank loan, the Cost of Debt is calculated by applying the formula KD * (1 - tax rate). For instance, with a 20% interest rate and a 30% tax rate, the cost of debt becomes 14%.

How is the Cost of Preferred Stock (KPS) calculated in the video?

The Cost of Preferred Stock (KPS) is calculated as the dividend on the preferred stock divided by the price of the stock. For example, if the dividend is 250 and the stock price is 1000, the KPS is 25%.

What example is provided in the video to demonstrate the calculation of Cost of Debt using bonds?

The video provides an example where bonds are issued with a 20% coupon rate, a nominal value of 1 million, emission costs of 50,000, and a 40% tax rate. After calculating the bond's effective cost of capital, it is found to be 12.6%.

What key point does the video emphasize regarding the relationship between dividends and the Cost of Preferred Stock?

The video emphasizes that the Cost of Preferred Stock is directly tied to the dividend rate and the price of the preferred stock. The higher the dividend in relation to the stock price, the higher the cost of capital from preferred stock.