OPTIMIZING THE CAPITAL STRUCTURE USING COST OF CAPITAL APPROACH: A CASE STUDY AT PT TELEKOMUNIKASI INDONESIA, TBK

• Main Author: KETUT SUWETJA DARSANA (NIM: 29110343) Pembimbing : Erman Sumirat, SE, Akt, MBus, I
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/18678
• Institution: Institut Teknologi Bandung

PT Telekomunikasi Indonesia, Tbk (Telkom) keeps strengthening its infrastructure to support the business. Investment in infrastructure urgently needed as technologies always develop very fast following the services demanded. The fund for investment can be generated from internal cash flow, or generated from external sources from debt or equity. But it is important to consider the proper composition of funding to get the lowest cost of capital possible. The objective of this study is to examine Telkom’s optimal debt ratio, using cost of capital approach based on the condition as of December 31, 2012. Rating consideration, share repurchase program and high dividend are root causes that must be taken into consideration to maintain the company’s growth in the long run. A simulation applied to estimates the weighted cost of capital at different debt ratios. Some constraints, including debt rating and earnings before interest and tax (EBIT) volatility against debt ratio, are considered in order to reduce the risk of default. With current debt ratio of 14%, Telkom is still under levered. The optimum debt ratio is 17% after considering the constraints. Historical investments showed good performances with return on capital no less than 25%, which was higher than the current cost of capital of 9.31%. Considering the issuance cost, interest paid and macroeconomic conditions, it is recommended for the company to take new debt of Rp.7 trillions.