Company Value Optimization Using Optimum Capital Structure Approach (A Study on PT Bandarudara Internasional Jawa Barat)

Abstract

As the third-highest economic growth province in Indonesia, West Java requires adequate
infrastructure, especially an international airport. West Java government took the initiative to
propose the construction of an international airport, named BIJB Kertajati. PT Bandarudara
Internasional Jawa Barat, which is a provincially-owned corporation, was established as a
special purpose vehicle assigned with the task of planning, funding, building, and managing
airports and aerocity areas. To carry out the assignments, PT BIJB requires capital to be able to
execute its operational activities. This study aimed to determine the optimal capital structure
composition that could increase the company’s value. This study calculated the company’s
highest value with two different approaches, namely the Modigliani-Miller approach and the
Ehrhard and Bringham approach with the Weighted Average Cost of Capital (WACC) method
and the calculation of financial distress. The results showed that by using the Modigliani-Miller
approach as well as Ehrhard and Bringham, the optimal capital structure for PT Bandarudara
Internasional Jawa Barat was 60% debt and 40% equity. In this capital structure, the company’s
value was at the highest which were Rp 4,257,911,646,807 using the Modigliani-Miller
approach (WACC 11.50%) and Rp 5,235,707,212,481 using the Ehrhard and Bringham
approach (WACC 12.91%). This level of debt resulted in a cost of financial distress of Rp
87,619,047,691.