The value of Golden Property Company is affected by its dealings with at least six external parties.

- Customers, by setting profitable but competitive room rates for the hotel, rental rates for both Office and Retail Space, and defining a marketing program to push high occupancy rate.

- Debtors, by getting favorable interest rates causing the investment to be financially competitive within the industry.

- Municipal government, by negotiating an extended leasehold right to secure its long-term business.

- Hotel Management Service -By negotiating a low management and incentive fee competitive within the industry while still having access to their worldwide reservation and marketing system.

- Shareholders, by focusing them on the long-term prospect of this investment in terms of dividend and gain in capital stock.

- Contractors, by negotiating a low bid and on-time completion of the projects.



As stated in the Terms of Reference, the primary goal of this report was to suggest an optimal capital structure as to maximize the value of the company. However, in the Indonesian capital market, and in the case of Golden Property, as the percentage of debt increases, the cost of debt does not. Consequently, we could not determine an optimal debt/equity ratio as to minimize the discount rate used to discount the expected cash flows. Therefore, the existing capital structure was used in calculating the Weighted Average Cost of Capital.



As the systematic risk characteristics of the Hotel, Office and Retail Space are unique, we treated each as a separate division. Therefore, separate cash flows were calculated for each division. The discount rate for each division was different, reflecting the variance in the systematic risk of each division. The method we used to value the company is the present value of the expected stream of cash flows reflecting the earning power of each division of the company. The combined value from these three divisions molds the value of the firm. Dividing the total value of the firm by the number of shares outstanding yields an expected stock price of $1.47.



Research location: Golden Property Company

Supervisor: Marita O. Sulivan, and Wiwiek M. Darianto

Accepted: November 1991.