#TITLE_ALTERNATIVE#

• Main Author: MICHELLE DUMASARI (NIM 19005081), PUTRI
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/11175
• Institution: Institut Teknologi Bandung

Every company should have a financing instrument and vehicle to finance its investments by using debt, equity, or the combination between debt and equity. A good financing mix between debt and equity will give company bigger opportunity to expand the business. This opportunity arises when the capital structure of the firm reaches the optimal proportion between debt and equity, where the weighted average cost of capital is minimized, and the firm's value is maximized.<p> <br /> <br /> <br /> <br /> <br /> <br /> Recently, the condition of property business in Indonesia is unpredictable. This is happened because property industry is affected by the changes of macroeconomic condition. The property business has decreased beginning end of year 2005 because of inflation rate, increase of land price, and increase of commercial interest rate.<p> <br /> <br /> <br /> <br /> <br /> <br /> However, at the beginning of year 2008, the United State Bank, The Fed, decreased its interest rate to 3% that cause the decrease of Indonesia's interest rate. That situation becomes an opportunity for Indonesia's property sector to expand.<p> <br /> <br /> <br /> <br /> <br /> <br /> This final project focuses on defining the optimal capital structure for the three largest property companies in Indonesia. The method used in analyzing the optimal capital structure is Cost of Capital Approach. The optimal capital structure is reached when the cost of capital is minimized and the firm value is maximized.<p> <br /> <br /> <br /> <br /> <br /> <br /> The conclusion of this final project is that the optimal capital structures are: <br /> <br /> <br /> <br /> <br /> - PT. A is 90% of debt in 2004 <br /> <br /> <br /> <br /> <br /> - PT. B is 80% of debt in 2004 <br /> <br /> <br /> <br /> <br /> - PT. C Development is 50% of debt in 2004 <br /> <br /> <br /> <br /> <br /> <br /> For year 2004, the weighted average cost of capital of the companies is lowest at a high level of debt ratio at the range between 50% and 90%. It is because the market returns in year 2004 are very high that makes the companies' stockholders ask for the high return. Therefore, it is more profitable for the companies to use high level of debt ratio as their funding.