Optimal Capital Structure Analysis for Energy Companies Listed in Indonesia Stock Exchange

Optimal Capital Structure Analysis for Energy Companies Listed in Indonesia Stock Exchange Nadhila Qamarani* The main goal of managerial finance is to maximize shareholders wealth which is highly affected by decisions made by a firm, including long-term financial decisions. The company s most basic long-term financial decision is selecting the appropriate proportions of a firm s mix of debt and equity financing commonly known as capital structure. Debt and equity financing have their own benefits and drawbacks. Therefore, it is highly important to attain the proportions of debt and equity that maximizes the value of the corporation and therefore the value of shareholder wealth. In Indonesia, energy sector is a critical aspect. Based on data from Badan Pusat Statistik (BPS), the growth of Electricity, Gas, and Water sector in the first to third quarter of 2012 compared to the same quarter of 2013 is increasing up to 5.80%. This sector also took part in giving positive contribution towards economic growth in 2013. With its critical role, energy companies needs to implement the optimal capital structure to increase value of the firm and have more opportunities for development and expansion plan. Hence, this study aims to analyze the optimal capital structure in energy companies concentrating on three energy companies listed in Indonesia Stock Exchange (IDX) which are LAPD, PGAS and RAJA. The period used as a sample is from 2009 to 2013. The method used in this study is the Weighted Average Cost of Capital (WACC). To do so, some preliminary calculations are required including cost of debt, cost of equity, debt to equity ratio, cost of capital and the value of the firm using companies financial data and market data. This research results in several conclusions. First, all companies in energy industry listed in IDX have not reach the optimal capital structure. The average of optimal debt ratio for LAPD during 2009 to 2013 is 24.75%, RAJA s average optimal debt ratio is 19.8% and PGAS is 24%. The average of actual debt ratio for this industry is 37% while the optimal debt ratio for the industry is 22.71%. By closing this 14.29% gap, this industry will obtain the optimal capital structure that will increase the average of firm value in energy industry by 23.31%. Key Word: Optimal Capital Structure, Energy Companies, Cost of capital, Value of the Firm, Indonesia. 1. Introduction The main goal of managerial finance is to maximize shareholders wealth. In order to achieve the goal, some decisions need to be made, including long-term financial decisions. The company s most basic long-term financial decision is selecting the appropriate proportions of a firm s mix of debt and equity financing commonly known as capital structure. In Indonesia energy sector is also a critical aspect. Based on data from Badan Pusat Statistik (BPS), the growth of Electricity, Gas, and Water sector in the first to third quarter of 2012 compared to the same quarter of 2013 is increasing up to 5.80%. This sector also took part in giving positive contribution towards economic growth in 2013. * Nadhila Qamarani, School of Business and Management, Institut Teknologi Bandung Indonesia. Email: nadhila.qr@gmail.com 1

Optimal capital structure is a critical issue for every business especially in a competitive and fast growing situation. However, there hasn t been any further research regarding capital structure optimization for companies in energy sector in Indonesia. Therefore the writer is interested to find out and discover more about optimal capital structure for companies in energy sector. 2 Literature Review 2.1 Capital Structures Optimal capital structure is defined by Terry S. Maness (1998) as the mix of debt and equity which maximizes the value of the corporation and therefore the value of shareholders wealth. The optimal capital structure is achieved when the weighted average cost of capital is minimized and eventually maximizing the company s value. 2.2 Cost of Debt The cost of debt is simply the cost of borrowing. Ross noted that the cost of debt is the return that the lenders require on the firm s debt (2008:485). A debt will inflict a fixed obligation for a company not only to make regular payments but also to provide the lenders with prior claims if the company is in financial trouble in the future. All of these obligations are summed and determined as the cost of debt. In this project, a synthetic rating system to calculate cost of debt will be used instead. A rating system is a measurement of cost of debt based on the company s financial ratio by giving a rating based on the ratio. This method requires a circular process. Interest Coverage Ratio Earning before interest and Taxes Interest Expense The value of interest coverage ratio is important to determine the bond rating of a debt ratio. Damodaran classifies the rating into table 2.1. 2

Table 2.1 Interest Coverage Ratio and Bond Rating (Source: Damodaran 2006:96) Interest Coverage Ratio Rating Typical Default spread >12.50 AAA 0.35 9.50 12.50 AA 0.50 7.50 9.50 A+ 0.70 6.00 7.50 A 0.85 4.50 6.00 A- 1.00 4.00 4.50 BBB 1.50 3.50 4.00 BB+ 2.00 3.00 3.50 BB 2.50 2.50 3.00 B+ 3. 2.00 2.50 B 4.00 1.50 2.00 B- 6.00 1. 1.50 CCC 8.00 0.08 1. CC 10.00 0.50 0.80 C 12.00 <0.50 D 20.00 It is necessary to estimate the rating from Indonesian Market Interest Rate as illustrated in table 2.2 to find out the interest rate of the company s debt according to the rating determined earlier and calculate the interest expense to find the interest coverage ratio Table 2.2 Indonesian Market Interest Rate (Harry, 2007) Rating Indonesian Market Interest Rate AAA 12.20 AA 12.72 A+ 13.24 A 13.76 A- 14.28 BBB 14.80 BB+ 15.32 BB 15.84 B+ 16.36 B 16.88 B- 17.40 CCC 17.92 CC 18.44 C 18.96 D 19.48 3

2.3 Cost of Equity Proceedings of 7th Asia-Pacific Business Research Conference According to Gitman, Capital asset pricing model (CAPM) describes the relationship between the required return, r s, and the nondiversifiable risk of the firm as measured by the beta coefficient, b. (2012:366). The CAPM method will be used instead to find out each company s cost of equity (R E ). R E = R f + (β x (R m R f ) Where, RE = Cost of equity Rf = Risk free rate β = Beta coefficient Rm = Market Return The formula to find current beta is βi Where, βi = Current Beta Cov im Covariance between the security s return and market s return σ² m = Variance of the market return Afterwards, calculate unlevered beta based on the current beta using this function below β unlevered = ( )( ) Where, T C = Corporate tax rate Debt = Actual debt capital Equity = Actual Equity capital The third step is calculating the levered beta β β unlevered [1 + (1 TC) ] Where, = Debt Equity Ratio 3 The Methodology and Model In the research, there are three companies in energy industry that is listed in Indonesia stock exchange. The research will used data from 2009 to 2013 as the samples. The capital structure analysis will use the cost of capital approach that considers cost of debt and cost of equity. Then the weighted average cost of capital will be calculated which will affect the value of the firm calculation. The optimal capital structure analysis will be done by using scenario analysis. This method provides several possible scenarios in cost of debt and equity calculation. WACC is a straightforward method to calculate the firm s overall cost of capital. The equation for WACC is 4

WACC = W E x R E + W D x R D x (1-T) Optimal capital structure is a condition where the company arrives at its maximum value because the weighted average cost of capital has been minimized. It is clear that optimal capital structure have a strong financial relationship with the value of the firm. The value of the firm itself means the present value of expected future cash flows. Gitman (2012) mentioned in other words that the present value of future cash flow is at its highest when the discount rate (cost of capital) at its lowest and further explain the equation to find the value of the firm using the simple valuation model below Value of the firm (V) = ( ) Where, EBIT = earnings before interest and taxes By assuming that EBIT is constant, it is clear that the value of the firm is maximized by minimizing the weighted average cost of capital. The value of the firm rises as the cost of capital falls, and it goes downwards as the cost of capital rises. The optimal capital structure is located at the optimum point where value of the firm is at its highest and the cost of capital at its lowest 4. Findings There are 14 samples used in this research from three energy companies in 5 years (2009-2013). These companies are PT Leyand International Tbk. (LAPD), PT Perusahaan Gas Negara Tbk. (PGAS), and PT Rukun Raharja Tbk. (RAJA). In 2013, LAPD has negative EBIT, therefore this sample is excluded from the analysis. Below are the background data which is the key assumption in the research. 4.1 Actual Capital Structure Analysis Table 4.1 Risk Free Rate and Market Return Year Risk Free Rate Market Return Tax Rate 2009 7.15 59.53 28 2010 6.50 38.30 2011 6.58 5.18 2012 5.77 12.13 2013 6.48 0.58 Source: Tabulated Data, Bank of Indonesia rate data and Indonesia Stock Exchange (IDX) This part describes how the cost of debt and equity, debt ratio, and EBIT of each company vary every year and affect the actual weighted average cost of capital and value of the firm. The cost of capital are summed and weighed based on each proportion as implied by debt ratio and equity ratio. Finally, the WACC is used to estimate the value of the firm. 5

In 2009, the average of actual WACC of this industry is 62.38% with the range from 32.80% to 97.94%. PGAS has the least WACC which signifies its ability to control its cost of capital followed by LAPD and RAJA with the biggest WACC among the three. In this period, the average debt proportion for this industry is 31% from the total capital. In the following year, the average WACC for the industry decreases by 45.09% from previous year to 17.29%. The three companies had its cost of equity lower due to the decrease in market return compared to the previous year. The average of debt proportion in this industry rises to 52% of the total capital. In 2011, the average proportion of debt in this industry falls back to 39% of the total capital. The gap between WACC of each company is not as big as the previous year. The actual WACC ranged from 9.19% to 10.09% with the average of 8.72%. RAJA had the highest WACC between the three companies. In this period, the average of the value of the firm goes upward to IDR 27,973,942,620,000. In 2012, the actual WACC of the industry are ranged from 6.97% to 13.82% with the average of 10.29%. The average ratio of debt is 31%. The average value of the firm decreases from the previous year to IDR 26,932,078,907,000. In 2013, the market shows the lowest return compared to previous four years. The risk will get lower as the return decreases causing the cost of equity in 2013 to also be the lowest compared to previous years. As expressed in table 4.2, the average debt proportion is 22% of the total capital. The actual WACC are ranged from 2.50% to 7.66%. Year Company Table 4.2 Actual Capital Structure in Energy Companies Actual Debt Ratio D/E Cost of Equity Cost of Debt WACC EBIT Value of The Firm 2009 LAPD 46 86 88.64 18.84 56.39 7,996 10,209 PGAS 47 90 53.16 10.28 32.80 8,247,172 18,103,786 RAJA 0 0 97.94 0 97.94 3 186 2010 LAPD 32 47 0.07 18. 5.89 16,028 204,068 PGAS 44 77 38.69 10.71 26.48 8,063,173 22,839,130 RAJA 80 353 21.71 18.93 19.49 6,048 23,270 2011 LAPD 27 37 6.07 17.61 9.19 19,244 157,128 PGAS 34 52 5.08 10.32 6.88 7,654,188 83,429,191 RAJA 57 132 5.17 13.83 10.09 45,155 335,507 2012 LAPD 19 23 5.07 15.28 6.97 23,939 7,619 PGAS 26 36 10.28 9.54 10.08 10,750,0922 79,951,026 RAJA 47 89 13.82 13.83 13.82 108,297 587,590 2013 PGAS 18 22 1.00 9.15 2.50 11,754,274 353,209,848 RAJA 43 76 3.29 13.44 7.66 112,290 1,099,457 Industry Average 37 21.87 40,014,858 6

4.2 Optimal Capital Structure Analysis The actual condition of capital structure in energy companies has been elaborated and analyzed in the previous part. This section will focus on the determining the optimal capital structure for energy companies. Many aspects that influence the optimal capital structure analysis such as debt ratio, cost of capital, and value of the firm. All of these factors will be included in the optimal analysis. The author will elaborate the process of determining optimal capital structure by taking PT Perusahaan Gas Negara Tbk. in 2009 as the sample. The first step is calculating cost of debt using scenario analysis. The first step to do in calculating cost of debt (2009) is identifying the debt amount and its portion in the whole capital which then indicated as debt ratio. The next step to be done is finding the interest expense. This part requires trial and error process. For example, PGAS for 5% debt ratio the author first assumes that based on Indonesian Market Interest Rate in chapter 2, this debt rated as AAA. With this rating, the pre-tax cost of debt is 12.20%. Then, the interest expense can be found by multiplying debt amount with the pre-tax cost of debt. With the findings of interest expense, the author proceeds to calculate the interest coverage ratio by dividing EBIT with interest expense. Finally we get 60.53 as interest coverage ratio, then the author check the bond rating from Damodaran, with the same rating AAA as assumed earlier, the interest coverage ratio should be above 12.50, since 60.53 is above 12.50, so the rate AAA is appropriate for this debt ratio. Table 4.3 will illustrate the cost of debt calculation with scenario analysis Debt Ratio Table 4.3 Scenario Analysis of Cost of Debt for PT Perusahaan Gas Negara Debt (in million IDR) Interest Expense Interest Coverage Ratio Bond Rating Pre-tax cost of debt Tax Rate Aftertax Cost of debt 0 - - AAA 12.20 28 0 5 1,116,855 136,6 60.53 AAA 12.20 28 8.78 10 2,233,711 272,512 30.26 AAA 12.20 28 8.78 15 3,350,566 408,769 20.18 AAA 12.20 28 8.78 20 4,467,422 545,0 15.13 AAA 12.20 28 8.78 5,584,277 710,320 11.61 AA 12.72 28 9.16 30 6,701,133 852,384 9.68 AA 12.72 28 9.16 35 7,817,988 1,035,101 7.97 A+ 13.24 28 9.53 40 8,934,844 1,229,434 6.71 A 13.76 28 9.91 45 10,051,699 1,435,382 5.75 A- 14.28 28 10.28 50 11,168,555 1,594,869 5.17 A- 14.28 28 10.28 55 12,285,410 1,754,356 4.70 A- 14.28 28 10.28 60 13,402,266 1,983,535 4.16 BBB 14.80 28 10.66 65 14,519,122 2,224,329 3.71 BB+ 15.32 28 11.03 70 15,635,977 2,476,738 3.33 BB 15.84 28 11.40 75 16,752,833 2,653,648 3.11 BB 15.84 28 11.40 7

80 17,869,688 2,923,481 2.82 B+ 16.36 28 11.78 85 18,986,544 3,106,198 2.66 B+ 16.36 28 11.78 90 20,103,399 3,288,916 2.51 B+ 16.36 28 11.78 95 21,220,5 3,581,979 2.30 B 16.88 28 12.15 99 22,113,739 3,732,799 2.21 B 16.88 28 12.15 PT Perusahaan Gas Negara tends to have low cost of debt due to its high amount of EBIT. It gives the company a higher bond rating with rating B as the lowest rate that affect the cost of debt to be low. The next step is calculating cost of equity with scenario analysis as presented in table 4.4. PGAS unlevered beta is 0.53 in 2009. Then the levered beta must be calculated for each amount of debt ratio according to the various scenarios made. In 2009 the cost of equity of PT Perusahaan Gas Negara tends to be high due to the high market return that reaches 59.53% in that period. High return comes along with high risk which explains the high cost of equity PT Perusahaan Gas Negara had. Table 4.4 Scenario Analysis of Cost of Equity for PT Perusahaan Gas Negara Debt Ratio D/E Levered Beta Cost of Equity 0 0.00 0.53 35.02 5 0.05 0.55 36.08 10 0.11 0.57 37. 15 0.18 0.60 38.56 20 0. 0.63 40.04 0.33 0.66 41.71 30 0.43 0.70 43.62 35 0.54 0.74 45.83 40 0.67 0.79 48.40 45 0.82 0.85 51.44 50 1.00 0.92 55.09 55 1.22 1.00 59.55 60 1.50 1.11 65.12 65 1.86 1.24 72.29 70 2.33 1.43 81.84 75 3.00 1.68 95.22 80 4.00 2.06 115.29 85 5.67 2.70 148.73 90 9.00 3.98 215.62 95 19.00 7.81 416.29 99 99.00 38.46 2021.65 The next step is calculating WACC and firm value to determine which debt ratio is the optimal debt ratio with the lowest WACC and highest firm value. This stage focuses on combining both cost of debt and cost of equity with scenarios of debt ratio from 0% to 99% with the interval of 5%. The weighted average cost of capital can be found by multiplying cost of debt with debt ratio, multiplying cost of equity with equity ratio, and adding both results. The calculation will be provided in table 4.5. 8

The firm value can be found by dividing net operating profit after tax (NOPAT) with the WACC. The EBIT for PT Perusahaan Gas Negara Tbk in 2009 is 8,247,172,354,167 while the tax rate is 28%. Therefore the NOPAT is 5,937,964,095,000 and this amount is assumed to be the same while the WACC varies according to the debt ratio. In 2009, with its high EBIT, PGAS tends to have lower cost of debt and higher cost of equity. From the scenarios made, it is found that the optimal debt ratio for PT Perusahaan Gas Negara in 2009 is 90% which means that the optimal proportion for equity financing is 20% from total capital. With this ratio, the company achieves the lowest WACC and highest value of the firm. This optimal capital structures results in 32.26% WACC with IDR 18,461,750,730,263 as its firm value. Table 4.5 Optimal WACC and Value of the Firm of PT Perusahaan Gas Negara Debt Ratio Equity Ratio Cost of Debt Cost of Equity WACC Firm Value (in million IDR) 0 100 0.00 35.02 35.02 16,955,558 5 95 8.78 36.08 34.71 17,106,243 10 90 8.78 37. 34.40 17,9,631 15 85 8.78 38.56 34.10 17,415,794 20 80 8.78 40.04 33.79 17,574,809 75 9.16 41.71 33.57 17,687,304 30 70 9.16 43.62 33.28 17,841,299 35 65 9.53 45.83 33.12 17,926,796 40 60 9.91 48.40 33.00 17,992,681 45 55 10.28 51.44 32.92 18,038,513 50 50 10.28 55.09 32.68 18,167,441 55 45 10.28 59.55 32.45 18,298,226 60 40 10.66 65.12 32.44 18,303,286 65 35 11.03 72.29 32.47 18,287,238 70 30 11.40 81.84 32.54 18,0,193 75 11.40 95.22 32.36 18,350,274 80 20 11.78 115.29 32.48 18,281,310 85 15 11.78 148.73 32.32 18,371,087 90 10 11.78 215.62 32.16 18,461,750 95 5 12.15 416.29 32.36 18,349,390 99 1 12.15 2021.65 32. 18,413,123 4.3 Summary of Optimal Capital Structure Analysis During 2009, the market grew actively which droves the market return in Jakarta Stock Exchange to be very high. High return comes with greater risk which influenced the cost of equity to be higher. This explains the reason why in 2009 the optimal capital structures tend to be at higher debt ratio. By maximizing debt financing, companies can avoid the high cost generated from equity financing. 9

In 2010, the market return decreased from the previous year but still considered to be high. The downfall in return also lowers the risk and eventually lowers the cost of equity. This condition gave the same effect Year Company Debt Ratio WACC Value of The Firm LAPD 99 55.46 10,381 2009 PGAS 90 32.16 18,461,750 RAJA 99 84.88 214 Average 96 57.50 6,157,448 LAPD 0 2.18 552,644 2010 PGAS 30 26.40 22,908,511 RAJA 0 10.76 42,176 Average 10 13.11 7,834,444 LAPD 0 6.52 221,419 2011 PGAS 0 5.47 104,904,980 RAJA 0 5.87 576,538 Average 0 5.95 35,234,312,932 LAPD 0 5.45 329,180 2012 PGAS 0 9.33 86,436,074 RAJA 0 10.59 766,868 Average 0 8.46 29,177,374 PGAS 0 1.79 493,481,6 2013 RAJA 0 4.44 1,829,323 Average 0 3.89 165,621,057 Average 22.71 18.66 52,180,120 on PGAS optimal capital structure in 2010. The optimal debt ratio shifted to the lower debt ratio which means that there are more portions given to equity financing. However, LAPD and RAJA which has much lower beta than PGAS had their cost of equity drastically decreased. This caused their optimal debt ratio to be 0% since their cost of debt is high compared to PGAS. So it is more beneficial for them to utilize equity financing rather than debt. From 2011 to 2013, the market return became much lower compared to 2009 and 2010. In this period, all three companies had 0% debt ratio as their optimal capital structure. The market return during 2011 and 2013 is lower than the risk free rate, causing market risk premium to be negative and lower the cost of equity. Summary of optimal capital structure analysis for companies in energy industry will be provided in table 4.6. Table 4.6 summary of optimal capital structure analysis For companies in energy industry After the optimal capital structure for each company in each year has been determined, it is necessary to compare the actual capital structure with the optimal condition and see whether the actual condition has reached the optimal point. There are three main things to compare which are debt ratio, WACC, and value of the firm. During 2009 to 2013, none of the companies made the optimal capital structure. In 2009, the debt ratios from all three companies were below the optimal debt ratio. On the 10

contrary, during 2010 to 2013, all companies actual debt ratios were above the optimal debt ratios. The average of actual debt ratio for this industry is 37% while the optimal debt ratio for the industry is 22.71%. By closing this 14.29% gap, this industry will obtain the optimal capital structure that will increase the average of firm value in energy industry by 23.31% which is up to IDR 52,180,120,762,000 from IDR 40,014,858,764,654. The WACC for companies in energy industry will also be minimized by 3.21%. Nevertheless, the author especially noted that this ratio may vary as time goes by. Moreover, with the volatility and economic fluctuation happening in Indonesia, it is compulsory for all financial managers to carefully reconsider factors in determining debt ratio for capital structure. Table below will demonstrate the impact of implementing optimal capital structure in energy companies. Table 4.7 Impact of Capital Structure Optimization in Energy industry in 2013 Year Company Difference in Decrease in Increase in Firm Debt Ratio WACC Value LAPD (53) 0.93 2 2009 PGAS (43) 0.64 2 RAJA (99) 13.06 13 Average (65.00) 4.88 2 LAPD 32 3.71 63 2010 PGAS 14 0.08 0 RAJA 80 8.73 45 Average 42.00 4.17 2 LAPD 27 2.67 29 2011 PGAS 34 1.41 20 RAJA 57 4.22 42 Average 39.33 2.77 21 LAPD 19 1.52 22 2012 PGAS 26 0.75 8 RAJA 47 3.23 23 Average 30.67 1.83 8 PGAS 18 0.71 28 2013 RAJA 43 3.22 42 Average 22 2.31 52 Industry Average (2009-2013) 14.29 3.21 23 4 Conclusion.Three companies in energy industry that are listed in Indonesia Stock Exchange compose their capital structures in various proportions throughout 2009 to 2013. The actual debt 11

ratio in 2009 for LAPD, PGAS, and RAJA are 46%, 47%, and 0%. The actual debt ratio in 2010 for LAPD, PGAS, and RAJA are 32%, 44%, and 80%. In the following year, the actual debt ratios are 27%, 34%, and 57%. During 2012 the actual debt ratios for LAPD, PGAS and RAJA are 19%, 26%, and 47%. In 2013, actual debt ratio for PGAS and RAJA are 18% and 43%, while LAPD in 2013 is excluded because of its negative EBIT. The average of actual debt ratios for this industry are 31%, 52%, 39%, 31% and 22% respectively. The average of actual debt ratio in five years is 37%. Which means that in five years, companies in energy industry uses 37% of their capital from debt financing and 63% from equity financing. Using the cost of capital approach with scenario analysis for cost of debt and equity, the optimal capital structures for energy industry were determined. With the volatility and fluctuation in Indonesia s economic condition, the optimal capital structures in 2009 and 2010 are significantly different compared to 2011 to 2013. The average of optimal debt ratio of companies in energy industry for five years is 22.71%. In 2013 only PGAS and RAJA were analyzed because LAPD s earnings before interest and tax (EBIT) was negative. In 2009, the optimal debt ratio for LAPD, PGAS, and RAJA are 99%, 90%, and 99%. In the following year the optimal debt ratio are 0%, 30%, and 0% respectively. From 2011 to 2013, the optimal debt ratios for all companies are the same which is 0%. The 0% optimal debt ratio for the last three years is mainly because the market return that turned drastically low compared to the first two years that lowers the cost of equity. In the meantime, the cost of debt is still high, especially for companies with low EBIT. This attracts companies to increase the portion of equity financing instead of debt financing. From 2009 to 2013, no companies in energy industry had achieved the optimal capital structure. The average of actual debt ratio for this industry is 37% while the optimal debt ratio for the industry is 22.71%. By closing this 14.29% gap, this industry will obtain the optimal capital structure that will increase the average of firm value in energy industry by 23% which is up to IDR 52,180,120,762,000 from IDR 40,014,858,764,654. The WACC for companies in energy industry will also be minimized by 3.21%. References Badan Pusat Statistik, 2014, Statistic Indonesia, accessed June 10 th 2014, < http://www.bps.go.id/eng/menutab.php?tab=1> Bank of Indonesia, 2014, Data BI Rate Bank Sentral Indonesia, accessed June 28 th 2014, < http://www.bi.go.id/en/moneter/bi-rate/data/default.aspx>. Damodaran, A 2001, Corporate Finance: Theory and Practice, (2 nd ed.), Wiley, New York. Gitman, Lawrence J., 2009, Principles of Managerial Finance (12 th ed.), New York: John Wiley & Sons, Inc. Harry Nurhadi, 2007, Optimal Capital Structure Analysis Using Adjusted Present Value (APV) Approach A Study of PLN Year 2004-2006. Indonesia Stock Exchange, 2014, Laporan Keuangan dan Tahunan, accessed June 12 th 2014, <http://www.idx.co.id>. 12

Maness, Terry S 1988, Introduction to Corporate Finance, McGraw-Hill, Singapore Ross, Stephen A., 2008, Corporate Finance Fundamentals (8 th ed.), New York: McGraw Hill. PT Leyand International Tbk. 2014, 2010-2013 Audited Annual Financial Report, Indonesia Stock Exchange, Indonesia PT Perusahaan Gas Negara Tbk. 2014, 2009-2013 Audited Annual Financial Report, Indonesia Stock Exchange, Indonesia PT Rukun Raharja Tbk. 2014, 2009-2013 Audited Annual Financial Report, Indonesia Stock Exchange, Indonesia Yahoo! Finance, 2014, Business Finance, Stock Market, Quotes, News, accessed June 1 st 2014, < https://finance.yahoo.com> Appendices Current Beta 2009 2010 2011 2012 2013 LAPD 1.556-0.184 0.056-0.110 0.186 PGAS 0.878 1.014 1.103 0.709 0.929 RAJA 1.733 0.488 1.002 1.265 0.542 Unlevered Beta Year 2009 2010 2011 2012 2013 Company LAPD PGAS RAJA LAPD PGAS RAJA LAPD PGAS RAJA LAPD PGAS RAJA LAPD PGAS RAJA Current Beta 1.556 0.878 1.733-0.184 1.014 0.488 0.056 1.103 1.002-0.110 0.709 1.265 0.186 0.929 0.542 Tax Rate D/E 28 28 28 85.9 90.4 00.0 47.1 77.5 352.8 37.0 52.4 131.7 22.8 35.7 89.2 5.4 22.4 75.7 Unlevered Beta 0.961 0.532 1.733 (0.136) 0.641 0.134 0.044 0.791 0.504 (0.094) 0.559 0.758 0.179 0.796 0.346 13

Financial Data of PT Leyand International Tbk. (LAPD) 2009 2010 2011 2012 2013 Long Term Debt 349,951 3,180 7,145 162,618 38,280 Equity 407,511 690,789 695,809 712,105 707,860 Total Capital 757,463 1,015,970 952,954 874,723 746,141 Debt Ratio 46 32 27 19 5 Equity Ratio 54 68 73 81 95 Debt Equity Ratio 85.9 47.1 37 22.8 5.4 EBIT 7,996 16,028 19,244 23,939 (3) Financial Data of PT Perusahaan Gas Negara Tbk. (PGAS) 2009 2010 2011 2012 2013 Long Term Debt 10,605,030 10,742,889 9,013,375 7,863,872 6,393,611 Equity 11,732,080 13,868,573 17,184,711 22,044,809 28,492,658 Total Capital (in million 22,337,110 24,611,462 26,198,087 29,908,682 34,886,270 IDR) Debt Ratio 47 44 34 26 18 Equity Ratio 53 56 66 74 82 Debt Equity Ratio 90.4 77.5 52.4 35.7 22.4 EBIT 8,247,172 8,063,173 7,654,188 10,750,092 11,754,274 Financial Data of PT Rukun Raharja Tbk. (RAJA) Long Term Debt Equity Total Capital 2009 2010 2011 2012 2013 0 272,820 241,105 498,470 439,399 69,348 77,331 183,008 558,761 580,516 69,348 350,151 424,114 1,057,232 1,019,915 Debt Ratio 0 78 57 47 43 Equity Ratio 100 22 43 53 57 Debt Equity Ratio 0 352.8 131.7 89.2 75.7 EBIT 3 6,048 45,155 108,297 112,290 14