CAPITAL STRUCTURE DECISION; AN EFFORT TO MAXIMIZE VALUE OF FIRM (CASE STUDY PT XYZ)

• Main Author: MARDIANSYAH (NIM: 29106060) , ARIE
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/11863
• Institution: Institut Teknologi Bandung

PT XYZ is a business entity that has main business and operates in rubber industry in Indonesia. Established since 1998 and continually grew up until now. On year 2007, PT XYZ decided to build its new plant and its first subsidiary at Tanjung Bintan, Lampung. This plant is purposed to develop corporate's core business in Indonesia. To fund its investment activity, PT XYZ has utilized amount of debt significantly largely. Increasing debt means that company decides to raise its financial risk in order to capture the opportunity on that time.<p>Using more debt has caused management and shareholders to be cautious in respons to the recent condition. Global economic condition now is decreasing and threatening to move to the recession stage. Furthermore, commodities prices and energy crisis have made inflation rate higher which is expected to continue in next few years. The conditions impact to consumer significantly and bring a new risk that consumer spending would be lower than previous. If that thing happened, PT XYZ's business prospect would become worst in the future.<p>Based on analysis, known that PT XYZ doesn't have a good financing decision strategy that can maximize value of its investing activity. It is reflected to firm's capital structure that just base on the need of capital in the early period of investment. Financing decision is influenced by flexibility, risk, income, control, time and other factors. Optimizing capital structure can sustain investment activity and maximize value of firm.<p>Solution offered for the problems above is that PT XYZ should implement a well-planned financing strategy in the future with considering benefit, cost, and other related factors. Proposed capital structure is expected to be optimal one in effort to maximize value of firm and shareholder's wealth. <br />