CAPITAL BUDGETING AND CASH FLOW PRINCIPLE1

CAPITAL BUDGETING AND CASH FLOW PRINCIPLES

  

Capital Budgeting: Proses evaluasi dan seleksi investasi jangka panjang yang sesuai dengan tujuan

perusahaan (maksimisasi kemakmuran pemilik).

  Capital Expenditure: Pengeluaran dana oleh perusahaan yang diharapkan untuk Expenditure memperoleh manfaat dalam jangka panjang Current Expenditure: Pengeluaran dana oleh perusahaan yang diharapkan untuk memperoleh manfaat dalam jangka waktu satu tahun Expansion Replacement Renewal Other Purposes Basic terminology:  Independent Versus Mutually Exclusive Projects  Unlimited Funds Versus Limited Funds  Accept – Reject Versus Ranking Approaches  Conventional Versus Nonconventional Cash Flow Patterns  Annuity Versus Mixed Stream Cash Flows #Relevant Cash Flows#

  Initial Investment Cash Flows Proyek Net Operating Cash Inflows Terminal Cash Flow

  Terminal Cash Flow 5.000 Net Operating Cash Inflows 700 1.000 1.400 2.000 2.100

  1 2 3 4 5 Initial Investment 10.000 Initial Investment for Replacement.

  Cost of new assets

• Installation costs

• Proceeds from sale of old assets
• /+ Taxes on sale of old assets
• /+ Change in net working capital
• Initial Investment Net Operating Cash Inflows.

  Revenue

• Expenses (excluding depreciation)
• Profits before depreciation & taxes
• Depreciation ------------------------------------------- Profits before taxes
• Taxes ------------------------------------------- Net Profits after taxes
• Depreciation ------------------------------- Net Operating Cash Inflows Terminal Cash Flow.

  Proceeds from sale of new asset

• Proceeds from sale of old asset
• /+ Taxes on sale of new assets
• /+ Taxes on sale of old assets
• /+ Change in net working capital
• Terminal Cash Flow # Capital Budgeting Techniques#

   Payback Period  Net Present Value  Internal Rate of Return

  POLA ALIRAN KAS TYPE SIGN ON NET CASH FLOW NUMBER OF

  1

  2

  3

  4

  5

  6 SIGN CHANGE

• Conventional + + 1 + + +
• Conventional

  1 +

• Conventional

  1 +

• Non Conventional

  2 +

• Non Conventional

  2 +

• Non Conventional

  3 Contoh: I. Proyek Expansi.

  Suatu perusahaan Otobus membeli bus eksekutif baru dengan harga Rp 1.000.000.000,00 melayani penumpang antar propinsi dan bus diperkirakan berumur ekonomis 10 tahun. Biaya surat-surat Rp 5.000.000,00 dan modal kerja yang harus disediakan diperkirakan Rp 5.000.000,00. Estimasi pendapatan per tahun Rp 300.000.000,00. Biaya per tahun (Operasi dan pemeliharaan) Rp 50.000.000,00. Bus pada akhir umur ekonomis dapat dijual dengan harga Rp 50.000.000,00. Pajak 10 %.

  Dari data tersebut dapat dihitung Initial Investmentnya: Initial Investment. Harga pembelian bus

  Rp 1.000.000.000,00 Biaya surat-surat

  Rp 5.000.000,00 Modal kerja

  Rp 5.000.000,00

  Initial Investment Rp 1.010.000.000,00 Net Operating Cash Inflow

  Pendapatan Rp 300.000.000,00

  Biaya Operasi Rp 50.000.000,00

  Biaya depresiasi Rp 100.000.000,00

  Laba Operasi Rp 150.000.000,00

  Bunga 0,00

  Laba Sebelum Pajak (EBT) Rp 150.000.000,00

  Pajak 10 % Rp 15.000.000,00

  Laba Setelah Pajak Rp 135.000.000,00

  Depresiasi Rp 100.000.000,00

  Net Operating Cash Inflow (Proceeds) Rp 235.000.000,00

  Terminal Cash Flow.

  Hasil Penjualan Bus Rp 50.000.000,00 Pajak Penjualan 10 % Rp 5.000.000,00

  Net Cash Flow Rp 45.000.000,00

  Rp

  45.000.000,00

  Annuity = Rp 235.000.000,00

   1 2 3 4 5 6 7 8 9 10 Rp 1.010.000.000,00

II. Proyek Penggantian.

  Perusahaan XYZ sedang mempertimbangkan untuk mengganti mesin lama dengan mesin baru. Harga beli mesin baru Rp 380.000,00 Biaya instalasi mesin Rp 20.000,00 Umur ekonomis

  5 tahun Harga beli mesin lama 3 tahun yang lalu Rp 240.000,00 Harga jual mesin lama saat ini Rp 280.000,00 Umur ekonomis

  5 tahun Dengan penggantian ini, perusahaan mengestimasi akan terjadi kenaikan asset lancar sebesar Rp 35.000,00 dan kewajiban lancar Rp 18.000,00 Pajak 10 %

  Initial Investment

  Harga beli mesin baru Rp 380.000,00 Biaya instalasi mesin Rp 20.000,00 Proceeds penjualan mesin lama Rp 280.000,00 Pajak penjualan mesin lama *) Rp 18.400,00 Perubahan modal kerja bersih Rp 17.000,00

  Initial Investment Rp 155.400,00

  Ket:

• ) Nilai buku mesin lama 240.000 – 144.000 = Rp 96.000,00 Pajak 10% (280.000 – 96.000) = Rp 18.400,00 Net Operating Cash Inflow. Selanjutnya diketahui bahwa estimasi pendapatan dan biaya per tahun diluar depresiasi untuk kedua mesin selama 5 tahun sebagai berikut:

MESIN BARU MESIN LAMA

  2 Rp 2.520,00 Rp 2.300,00 Rp 2.300,00 Rp 2.110,00

  3 Rp 2.520,00 Rp 2.300,00 Rp 2.400,00 Rp 2.230,00

  4 Rp 2.520,00 Rp 2.300,00 Rp 2.400,00 Rp 2.250,00

  5 Rp 2.520,00 Rp 2.300,00 Rp 2.250,00 Rp 2.120,00

  MESIN BARU LABA SEBELUM DEP. & PAJAK DEPRE SIASI N O C I F

TH PENDAPATAN BIAYA EBIT PAJAK

  10%

  

1 Rp 2.520,00 Rp 2.300,00 Rp 220,00 Rp 80,00 Rp 140,00 Rp 14,00 Rp 206,00

  

2 Rp 2.520,00 Rp 2.300,00 Rp 220,00 Rp 80,00 Rp 140,00 Rp 14,00 Rp 206,00

  

3 Rp 2.520,00 Rp 2.300,00 Rp 220,00 Rp 80,00 Rp 140,00 Rp 14,00 Rp 206,00

  

4 Rp 2.520,00 Rp 2.300,00 Rp 220,00 Rp 80,00 Rp 140,00 Rp 14,00 Rp 206,00

  

5 Rp 2.520,00 Rp 2.300,00 Rp 220,00 Rp 80,00 Rp 140,00 Rp 14,00 Rp 206,00

  1 Rp 2.520,00 Rp 2.300,00 Rp 2.200,00 Rp 1.990,00

MESIN LAMA

  

4 Rp 2.400,00 Rp 2.250,00 Rp 150,00 Rp 0,00 Rp 150,00 Rp 15,00 Rp 135,00

  

5 Rp 2.250,00 Rp 2.120,00 Rp 130,00 Rp 0,00 Rp 130,00 Rp 13,00 Rp 117,00

NO C I F RELEVANT CASH FLOW

  T H MESIN BARU MESIN LAMA

  1 Rp 206,00 Rp 193,80 Rp 12,20

  2 Rp 206,00 Rp 175,80 Rp 30,20

  3 Rp 206,00 Rp 153,00 Rp 53,00

  4 Rp 206,00 Rp 135,00 Rp 71,00

  5 Rp 206,00 Rp 117,00 Rp 89,00 TERMINAL CASH FLOW.

  Jika diketahui bahwa mesin yang baru laku dijual Rp 50.000,00 dan perusahaan berharap akan menutup modal kerja bersih Rp 17.000,00, maka aliran kas akhir umur proyek. Penjualan mesin baru Rp 50.000,00 Pajak penjualan mesin baru Rp 5.000,00

  

3 Rp 2.400,00 Rp 2.230,00 Rp 170,00 Rp 0,00 Rp 170,00 Rp 17,00 Rp 153,00

  

1 Rp 2.200,00 Rp 1.990,00 Rp 210,00 Rp 48,00 Rp 162,00 Rp 16,20 Rp 193,80

  

2 Rp 2.300,00 Rp 2.110,00 Rp 190,00 Rp 48,00 Rp 142,00 Rp 14,20 Rp 175,80 Perubahan modal kerja bersih Rp 17.000,00

  Terminal Net Cash In Flow Rp 23.000,00

CAPITAL BUDGETING TECHNIQUES

Capital Budgeting Techniques.

  A number of techniques used to analyze the relevant cash flows to asses whether a project is acceptable or to rank projects.

  1. Payback period (PP) Payback period is the exact amount of time required for a firm to recover its initial investment as calculated from cash inflows.

   In the case of annuity, Payback period =  In the case of mixed Stream, Payback Period must be accumulated until the Initial Investment is recovered Example. Capital expenditure data for Barnet Company.

  Project A B Initial Investment $ 42,000.00 $ 45,000.00 Year 1 $ 14,000.00 $ 28,000.00 2 $ 14,000.00 $ 12,000.00 3 $ 14,000.00 $ 10,000.00 4 $ 14,000.00 $ 10,000.00 5 $ 14,000.00 $ 10,000.00 Average $ 14,000.00 $ 14,000.00  Project A has annual cash inflows.

  Payback period = = = 3 years  Project B has mixed stream cash inflows

  B $ 45,000.00 Accumulated Cash inflows $ 28,000.00 $ 28,000.00 $ 12,000.00 $ 40,000.00 $ 10,000.00 $ 50,000.00

  $ 10,000.00 $ 10,000.00

  At the end of year 3, $ 50,000.00 will be recovered. Since the amount received by the end of year 3 is greater than the initial investment of $ 45,000.00, the payback period is somewhere between two and three years. It is only $ 5,000.00 must be recovered during year 3. So, it needs 50 percent of $ 10,000.00 to complete the payback of initial investment. Therefore paybeck period for project B is 2.5 years

  2. Net Present Value (NPV)

  Net Present Value discounts the firm’s cash flows at a specified rate called discount rate/opportunity rate/cost of capital/. NPV = Present Value of Cash Inflows – initial Investment _n NPV = – Initial Investment _{t 1 }

  

NPV calculation for Project A

Annual cash inflows $ 14,000.00 PVIFA, 10%, 5 years 3.791 PV of cash inflows $ 53,074.00 Initial Investment $ 42,000.00 NPV

  $ 11,074.00

NPV calculation for Project B

Year Cash Inflows PVIF, PV

  10%, 5 Years 1 $ 28,000.00 0.909 $ 25,452 2 $ 12,000.00 0.826 9,912 3 $ 10,000.00 0.751 7,510 4 $ 10,000.00 0.683 6,830 5 $ 10,000.00 0.621 6,210 PV of cash inflows $ 55,914 Initial Investment $ 45,000 NPV $ 10,914

  3. Internal Rate of Return (IRR)

  IRR is the discount rate that equates the PV of cash inflows with initial investment associated with a project, thereby causing NPV = 0

  n n 0 = – Initial Investment OR = Initial Investment _{t 1 t 1  }  

  IRR = k + (k – k )

  1

  2

1 Example.

  Capital expenditure data for Barnet Company.

  Project A B Initial Investment $ 42,000.00 $ 45,000.00 Year 1 $ 14,000.00 $ 28,000.00 2 $ 14,000.00 $ 12,000.00 3 $ 14,000.00 $ 10,000.00 4 $ 14,000.00 $ 10,000.00 5 $ 14,000.00 $ 10,000.00 Average $ 14,000.00 $ 14,000.00

   In the case of annuity

  Project A k1 = 18% k2 = 20% $14,000.00 1 11864.40678 $11,666.67

  $14,000.00 2 10054.58202 $9,722.22

  $14,000.00 3 8520.832218 $8,101.85

  $14,000.00 4 7221.044252 $6,751.54

  $14,000.00 5 6119.529027 $5,626.29

  PV of cash inflows 43780.39429 41868.56996 Initial Investment 42,000 42,000

NPV 1,780 -131

  IRR = k 1 + (k 2 – k 1 )

  IRR = 18% + (20% – 18%)

  IRR = 19,8%

  Project B k1 = 18% k2 = 22% $28,000.00 1 23728.81356 22950.81967

  $12,000.00 2 8618.213157 8062.348831

  $10,000.00 3 6086.308727 5507.068874

  $10,000.00 4 5157.888752 4513.99088

  $10,000.00 5 4371.092162 3699.992525

  PV of cash inflows 47962.31636 44734.22078 Initial Investment 45,000 45,000

NPV 2,962 -266

  IRR = k + (k – k )

  1

  2

1 IRR = 18% + (22% – 18%)

  IRR = 21,6% Comparing NPV and IRR Techniques.

  For conventional projects, NPV and IRR will always generate the same accept- reject decision. The differences in their assumptions cause them to rank projects differently.

  1. NPV Profiles Projects can be compared graphically by constructing NPV profiles.

  Example.

  Discount Rate NPV A B 0% $ 28,000.00 $ 25,000.00 10% 11,074.00 10,914.00 1295 20% 22%

• -131

  Conflicting Rankings.

  Conflicting rankings dengan menggunakan NPV dan IRR karena:  The magnitude of cash flows  Timing of cas flows Asumsi implicit: reinvestment of intermediate ash inflows (cash inflows received prior of intermediate cash inflows). NPV: the intermediate cash inflows are reinvested at the cost of capital

  IRR : the intermediate cash inflows are reinvested at the rate equal to the project’s IRR Project with similar sized investment.

  CASH INFLOW PATTERN Discount Rate Lower Early Year Cash Higher Early Year Cash Inflows Inflows Low Preferred Not Preferred High Not Preferred Preferred Which One Is Better?  Theoritical View.

  NPV is better approach to capital budgeting. NPV assumes that the intermediate cash inflows are reinvested at the cost of capital (reasonable estimate) than IRR at the rate equal to the project’s IRR.

   Practical View Financial managers prefer to use IRR. The business manager prefers to use rate of return rather than actual dollar returns. Interest rate and profitability expressed as annual return.

  Approaches For Dealing With Risk.

  Up to this point assume that all project’ cash inflows have the same level of risk. Actually each project’ cash inflows has its risk.

  Risk and Cash Inflows.

  Risk refers to the chance that the project will prove unacceptable (NPV < 0 and IRR < CoC). Risk in capital budgeting stems from CASH INFLOWS (uncertainty), while initial investment is known with relative certainty. All components in cash inflows (sales, CGS, operating expenses) are uncertain. Analyst has to evaluate the probability that the cash inflows will be large enough to provide for project acceptance. Exp. Tyre company has 2 mutually exclusive projects (A and B). Each requires $ 10,000 initial investment (II) and provides equal annual CIF over 15 years lives.

  NPV = CIF * (PVIFA k,n ) – Initial Investment > 0

  k =10%, n = 15 years, II = $ 10,000, the breakeven cash inflows (minimum

  level of cash inflows) necessary for projects to be acceptable: NPV = CIF * (PVIFA k,n ) – Initial Investment > 0 CIF * (PVIFA ) – 10,000 > 0 10%,15 CIF * (7.606) – 10,000 > 0 CIF > = $ 1,315

  Assume that the analysis results as follows: > $1,315 100%

  A

   Probability of CIF > $1,315 60%

   Probability of CIF B Project A less risky than project B.