The Basics of Capital Budgeting: Apakah Akan Membangun Pabrik?

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CHAPTER 11
The Basics of Capital Budgeting
Apakah akan membangun pabrik?
Copyright 2001 by Harcourt, Inc.
All rights reserved.
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What is capital budgeting? Menganalsis tamban potensi fixed asset.
Keputusan jangka panjang; menyangkut dana dalam jumlah besar. Sangat penting dan berpengaruh pada perusahaan di masa depan.
Copyright 2001 by Harcourt, Inc. All rights reserved.
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Steps 1. Estimasi Cash Flows (inflows & outflows). 2.Menilai risiko arus kas. 3. Menentukan k = WACC (adj.). 4. Menghitungd NPV and IRR. 5. Menerima jika NPV > 0 dan IRR > WACC.
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independent dan mutually exclusive projects Projects are: independent, jika cash flows yang satu tidak dipengaruhi oleh penerimaan yang lain. mutually exclusive, jika cashflow yang satu dipengaruhi secara negatif dengan penerimaan yang lain Copyright 2001 by Harcourt, Inc. All rights reserved.
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An Example of Mutually Exclusive Projects
BRIDGE vs. BOAT to get products across a river.

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Normal Cash Flow Project: Cost (negative CF) followed by a series of positive cash inflows. One change of signs. Nonnormal Cash Flow Project: Two or more changes of signs. Most common: Cost (negative CF), then string of positive CFs, then cost to close project. Nuclear power plant, strip mine.
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What is the payback period?
The number of years required to recover a projects cost, or how long does it take to get our money back?
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Payback for Project L (Long: Large CFs in later years)

0 CFt -100 Cumulative -100 PaybackL = 2 + 1 10 -90 30/80 2
2.4
3 80 50
60 100 -30 0
= 2.375 years
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Project S (Short: CFs come quickly)

0
CFt -100
1.6 2
3
20 40
70 100 50 -30 0 20
Cumulative -100
PaybackL
= 1 + 30/50 = 1.6 years
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Strengths of Payback: 1. Provides an indication of a projects risk and liquidity. 2. Easy to calculate and understand.
Weaknesses of Payback:
1. Ignores the TVM. 2. Ignores CFs occurring after the payback period.
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Discounted Payback: Uses discounted rather than raw CFs.

0 CFt PVCFt -100 -100
10%
1 10 9.09 -90.91
2 60 49.59 -41.32
3 80 60.11 18.79
Cumulative -100
Discounted = 2 payback
+ 41.32/60.11 = 2.7 years
Recover invest. + cap. costs in 2.7 years.

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NPV: Sum of the PVs of inflows and outflows.
CFt NPV t . t 0 1 k
n
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Whats Project Ls NPV? Project L: 0 -100.00 9.09 49.59 60.11 18.79 = NPVL
10%
1 10
2 60
3 80
NPVS = $19.98.
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Calculator Solution
Enter in CFLO for L:

-100
CF0
CF1
10
60
CF2
CF3 I NPV = 18.78 = NPVL
80
10
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Rationale for the NPV Method NPV = PV inflows Cost = Net gain in wealth. Accept project if NPV > 0.
Choose between mutually exclusive projects on basis of higher NPV. Adds most value.
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Using NPV method, which project(s) should be accepted?
If Projects S and L are mutually exclusive, accept S because NPVs > NPVL . If S & L are independent, accept both; NPV > 0.
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Internal Rate of Return: IRR

0 CF0 Cost 1 CF1 2 CF2 Inflows 3 CF3
IRR is the discount rate that forces PV inflows = cost. This is the same as forcing NPV = 0.
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NPV: Enter k, solve for NPV.

CFt t NPV . t 0 1 k
n
IRR: Enter NPV = 0, solve for IRR.

CFt t 0. t 0 1 IRR
n
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Whats Project Ls IRR?

0
IRR = ?
1 10
2 60
3 80
-100.00 PV1 PV2 PV3
0 = NPV
Enter CFs in CFLO, then press IRR: IRRL = 18.13%. IRRS = 23.56%.
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Find IRR if CFs are constant:

0
-100
INPUTS OUTPUT 3
N I/YR IRR = ?
1
40
2
40
-100
PV
3
40
40
PMT
0
FV
9.70%
Or, with CFLO, enter CFs and press IRR = 9.70%.

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Q.
A.
How is a projects IRR related to a bonds YTM? They are the same thing. A bonds YTM is the IRR if you invest in the bond.
1
IRR = ?
10
...
90 90 1090
-1134.2
IRR = 7.08% (use TVM or CFLO).

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Rationale for the IRR Method
1. IRR merupakan ekspektasi imbal hasilnya 2. Jika IRR > WACC, imbal hasil proyek lebih besar dari biayanya, akan terdapat surplus untuk pemegang saham 3. Menerima proyek yang IRR > WACC, akan meningkatkan kekayaan pemegang saham.
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IRR Acceptance Criteria
If IRR > k, accept project.
If IRR < k, reject project.
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Decisions on Projects S and L per IRR
Jika S and L independent, terima ke duanya jika IRRs > k = 10%.
Jika S and L proyek yang mutually exclusive, menerima S jika :

IRRS > IRRL .
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Construct NPV Profiles

Profil NPVL and NPVS pada discount rates yang bebeda :
k 0 5 10 15 20
NPVL 50 33 19 7 (4 (4)
NPVS 40 29 20 12 5
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NPV ($)
60
. 40 .
50 30 20 10
. .
Crossover Point = 8.7%
k 0 5 10 15 20
NPVL 50 33 19 7 (4)
NPVS 40 29 20 12 5
.
L
5 10
. .
15
0
-10
. . 20
IRRS = 23.6%
.
23.6
Discount Rate (%)
IRRL = 18.1%
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NPV dan IRR mempunyai keputusan yang sama untuk menerima atau menolak proyek yang independent
NPV ($)
IRR > k and NPV > 0 Accept.
k > IRR and NPV < 0. Reject.
k (%) IRR
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Masalah dalam capital budgeting pada mutually exclusive 1. Skala Investasi :

Cash Outflow Th. 0 500 3.000 Proceed Th. 1 750 3.900 IRR NPV (15%) 152,17 391,30
Invstasi D Investasi E
50% 30%
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Masalah dalam capital budgeting pada mutually exclusive 2. Perbedaan waktu dari arus kas
Cash outflow Th. 0 -100.000 -100.000 Proceed Proceed Th. 1 Th. 2 100.000 150.000 110.000 130.000 Proceed Th. 3 120.000 -
Invest F Invest G
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Mengatasi Perbedaan waktu arus kas

Investasi F Th 0 -100 Th 1 100 Th 2 110 Th. 3 120 100 110 120 Th. 4 Th 5 Th 6
-100
150
130 - 100
150
130 - 100 Th. 4 100
150 Th 5 110
130 Th 6 120
Investasi
Th 0 -100
Th 1 100
Th 2 110
Th. 3 120
-100
150
30
150
30
150
130
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Masalah dalam capital budgeting 3. Multiple Rate of Return Jika tingkat bunga setiap tahun berubah, sehingga digunakan discount rate yang lebih dari satu, kita hanya dapat menggunakan NPV
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Masalah dalam capital budgeting

4. Nilai sisa aktiva
Jika diperkirakan pada akhir usia ekonomis masih ada nilai sisa (salvage value), harus ditambahkan pada proceed tahun terakhir. 5. Investasi pada aktiva tetap sering memerlukan tambahan modal kerja, maka pengeluaran untuk modal kerja ini ditambahkan pada pengeluaran pada tahun ke nol. Dan diperlakukan sebagai cashinflow pada akhir tahun usia ekonomis aktiva tetap tsb.
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Mutually Exclusive Projects

NPV
L
k < 8.7: NPVL> NPVS , IRRS > IRRL CONFLICT k > 8.7: NPVS> NPVL , IRRS > IRRL NO CONFLICT
IRRS
8.7
%
IRRL
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Reinvestment Rate Assumptions
NPV diasumsikan diinvestasikan kembali pada k (opportunity cost of capital).

IRR diasumsikan diinvestasikan kembali pada IRR. Reinvest pada opportunity cost, k, lebih realistis, maka NPV lebih baik dari IRR. NPV lebih baik untuk memilih proyek yang mutually exclusive.
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Modified Internal Rate of Return (MIRR)
Discount rate yang membuat PV dari terminal value (TV) = PV dari biaya proyek. TV = penjumlahan cash inflows yang dimajemukkan pada WACC. MIRR mengasumsikan cash inflows diinvestasikan kembali pada tingkat WACC. Copyright 2001 by Harcourt, Inc. All rights reserved.
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Modified Internal Rate of Return (MIRR)
MIRR : PV biaya = PVTerminal Value = PV Biaya =

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MIRR for Project L (k = 10%)

0
10%
1 10.0
10%
2 60.0
10%
3 80.0
-100.0
66.0 12.1 158.1

TV inflows
MIRR = 16.5%
-100.0 PV outflows
$158.1 $100 = (1 + MIRRL)3 MIRRL = 16.5%
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To find TV with HP 10B, enter in CFLO: CF0 = 0, CF1 = 10, CF2 = 60, CF3 = 80 I = 10 NPV = 118.78 = PV of inflows.
Enter PV = -118.78, N = 3, I = 10, PMT = 0. Press FV = 158.10 = FV of inflows. Enter FV = 158.10, PV = -100, PMT = 0, N = 3. Press I = 16.50% = MIRR.
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Why use MIRR versus IRR? 1. MIRR menjadi indikator imbal hasil proyek yang lebih baik dari IRR 2. MIRR berasumsi arus kas proyek akan diinvestasikan kembali pada tingkat biaya modal
3. Dapat memecahkan masalah IRR gandaan IRR (discount rate ganda).

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Inflasi Dalam Capital Budgeting Inflasi akanmempengaruhi kegiatan Ekonoi, sehingga depresiasi menjadi sangat relevan.
Misal : Investasi senilai Rp. 24.000 selama 4 tahun. Depresiasi menggunakan garis lurus, dan tarif pajak perusahaan 50%
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Inflasi Dalam Capital Budgeting

Tahun Penghematan Depresiasi (1) Kas (2) (3)
1 10.000 6.000
Pajak (4)
2.000
Cashflow sesudah pajak (5) 8.000 8.000 8.000 8.000
2 3 4
10.000 10.00 10.000
6.000 6.000 6.000
2.000 2.000 2.000
Tanpa Inflasi , IRR = 12,6%

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Inflasi = 7%
Tahun Penghematan Depresiasi (1) Kas (2) (3)
1 10.700 6.000
Pajak (4)
2.350
Cashflow sesudah pajak (5) 8.350 8.724 9.125 9.554
2 3 4
11.449 12.250 13.108
6.000 6.000 6.000
2.725 3.125 3.554
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Cashflow sesudah pajak dideflasi dengan tingkat Inflasi = 7%

Tahun (1) Cashflow sesudah pajak Cashflow sesudah pajak Riel
1
2 3 4
8.350
8.724 9.125 9.554
7.804
7.620 7.449 7.289
IRR = 9,9%

The Basics of Capital Budgeting: Apakah Akan Membangun Pabrik?

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Copyright 2001 by Harcourt, Inc.

All rights reserved.

What is capital budgeting? Menganalsis tamban potensi fixed asset.

An Example of Mutually Exclusive Projects

BRIDGE vs. BOAT to get products across a river.

What is the payback period?

Copyright 2001 by Harcourt, Inc.

All rights reserved.

Payback for Project L (Long: Large CFs in later years)

Copyright 2001 by Harcourt, Inc.

All rights reserved.

Project S (Short: CFs come quickly)

= 1 + 30/50 = 1.6 years

Copyright 2001 by Harcourt, Inc.

All rights reserved.

Discounted Payback: Uses discounted rather than raw CFs.

+ 41.32/60.11 = 2.7 years

Recover invest. + cap. costs in 2.7 years.

NPV: Sum of the PVs of inflows and outflows.

Copyright 2001 by Harcourt, Inc.

All rights reserved.

Enter in CFLO for L:

Copyright 2001 by Harcourt, Inc.

Using NPV method, which project(s) should be accepted?

Internal Rate of Return: IRR

NPV: Enter k, solve for NPV.

IRR: Enter NPV = 0, solve for IRR.

Whats Project Ls IRR?

-100.00 PV1 PV2 PV3

Find IRR if CFs are constant:

Or, with CFLO, enter CFs and press IRR = 9.70%.

IRR = 7.08% (use TVM or CFLO).

Rationale for the IRR Method

IRR Acceptance Criteria

If IRR > k, accept project.

If IRR < k, reject project.

Copyright 2001 by Harcourt, Inc.

All rights reserved.

Decisions on Projects S and L per IRR

Jika S and L independent, terima ke duanya jika IRRs > k = 10%.

Jika S and L proyek yang mutually exclusive, menerima S jika :

Copyright 2001 by Harcourt, Inc.

All rights reserved.

Construct NPV Profiles

Crossover Point = 8.7%

Discount Rate (%)

Copyright 2001 by Harcourt, Inc.

IRR > k and NPV > 0 Accept.

k > IRR and NPV < 0. Reject.

Masalah dalam capital budgeting pada mutually exclusive 1. Skala Investasi :

Copyright 2001 by Harcourt, Inc.

All rights reserved.

Copyright 2001 by Harcourt, Inc.

All rights reserved.

Mengatasi Perbedaan waktu arus kas

130 - 100 Th. 4 100

Copyright 2001 by Harcourt, Inc.

All rights reserved.

Copyright 2001 by Harcourt, Inc.

All rights reserved.

Masalah dalam capital budgeting