Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *Chapter 14Long-Run Investment Decisions:Capital Budgeting

Capital BudgetingThe Capital Budgeting ProcessCapital Rationing & The Profitability IndexThe Cost of CapitalReviewing Investment Projects after ImplementationThe Cost of Capital & International Competitiveness

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *Capital Budgeting DefinedProcess of planning expenditures that give rise to revenues or returns over a number of years

Rencana pengeluaran yg menghasilkan penerimaan dalam jangka panjang

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *Categories of InvestmentJenis InvestasiReplacement PergantianCost Reduction Pengurangan BiayaOutput Expansion to Accommodate Demand Increases Perluasan Produk karena Peningatan PermintaanOutput Expansion for New Products Perluasan Produk BaruGovernment Regulation Peraturan Pemerintah

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *Capital Budgeting ProcessDemand for CapitalSchedule of investment projectsOrdered from highest to lowest returnSupply of CapitalMarginal cost of capitalIncreasing marginal costOptimal Capital BudgetUndertake all projects where return is greater than marginal cost

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *Capital Budgeting ProcessFirm will undertake projects A, B, and C

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *Capital Budgeting ProcessProjecting Net Cash FlowsIncremental basisAfter-tax basisDepreciation is a non-cash expense that affects cash flows through its effect on taxes

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *Capital Budgeting ProcessExample: Calculation of Net Cash Flow

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *Capital Budgeting ProcessNet Present Value (NPV)

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *Capital Budgeting ProcessInternal Rate of Return (IRR)

*IRR Internal Rate of Return: Kemampuan rata-rata mendapatkan uang dari investasi yang dilakukan selama umur proyek, di mana NPW = 0

Proyek disetujui jika IRR di atas dari Opportunity Cost of Capital

Econ Analysis: Internal Economic ReturnFinancial Analysis: Internal Financial Return

IRR = Discount rateyang rendahSelisih antaradiscount rate

+NPV pada discount rate yang rendahJumlah NPV padakedua discount rate (absolute)IRR = 20 + 5 (0.29 : 1.14) = 20 + 5 (0.25) = 21%

p. 336Tanda (+ dan - ) diabaikan 0.29 + 0.85 = 1.14 25 20 = 5

NPV at 12% = Rp + 8.14IRR = 20 + 5(0.29 : 1.14) = 20 + 5(0.25) = 21%N/K at 12% = $ 10.54 : $ 5.32 = 1.98 NPV atau NPW (Net Present Worth), IRR (Internal Rate of Return), N/K (Net Benefit-Investment Ratio) (-)(+)$ 10.54 $ 5.32See: Table 10-1. p. 366

YearIncremental CostIncremental BenefitIncremental Net Benefit(cash flow)Discount Factor12 %Present Worth12 %Discount Factor20 %Present Worth20 %Discount Factor25 %Present Worth25 %10.5---- 0.50.893- 0.450.833- 0.420.800- 0.4022.10.4- 1.70.797- 1.350.694- 1.180.640- 1.0933.70.8- 2.90.712- 2.060.579- 1.680.512- 1.4843.71.4- 2.30.636- 1.460.482- 1.110.410- 0.9452.02.1+ 0.10.567+ 0.06 0.402+ 0.040.328+ 0.0360.52.5+ 2.00.507+ 1.010.335+ 0.670.262+ 0.527 - 300.52.9+ 2.43.944+ 9.471.653+ 3.971.044+ 2.51Total24.576.8+ 52.38.056+ 8.144.978+ 0.293.996- 0.85

*01220258.140.29- 0.85IRR = 21%Discount rate (%)NPVHubungan antara IRR dengan NPVIRR = i of project can pay

*3) BENEFIT COST RATIO (B/C Ratio)B/C: pengukuran yg didiskonto (discounted measures) dari nilai proyek (project worth): Nilai sekarang dari benefits Nilai sekarang dari Costs

= Benefit-cost ratio= Benefit-cost ratioB/C banyak digunakan utk mengukur social-benefit dalam analisa ekonomi: misal proyek irigasiNilai sekarang = Present Worth atau Present Value

Table 9-16 Benefit-Cost Computation Comparing Gross Benefit with Gross Cost, Ilocos Project (miilions of US $)B/C ratio at 12% = $29.64 : $20.06 = 1.48 NPW at 12% = $29.64 - $20.06 = $9.58 Catatan: + adalah nilai yang tidak dituliskan: Lihat Gittinger hal. 342

YearIncremental Costs (TOTAL)Discount Factor 12%Present Worth 12%Value of Incremental Production (Gross Benefit)Discount Factor 12%Present Worth 12%

123456-910-301.09++++++1.621.95 *0.893++++++0.3612.727 *0.97++++++0.585.32000001.67+6.688.380.893++++0.507+0.3612.727 *000000.85+2.4122.85Total63.6020.06192.6729.64

*

4) NET BENEFIT INVESTMENT RATIO (N/K Ratio)Nt = manfaat neto tambahan yang diterima tiap tahun yang bernilai positifKt = manfaat neto tambahan yang diterima pada tahun-tahun pertama yg bernilai negatif

N/K = returns to capital

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *Capital RationingProfitability Index (PI)

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *The Cost of CapitalCost of Debt (kd)

kd = r(1-t)

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *The Cost of CapitalCost of Equity Capital (ke):Risk-Free Rate Plus Premiumke = rf + rpke = rf + p1 + p2

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *The Cost of CapitalCost of Equity Capital (ke):Dividend Valuation Model

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *The Cost of CapitalCost of Equity Capital (ke):Dividend Valuation Model

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *The Cost of CapitalCost of Equity Capital (ke):Capital Asset Pricing Model (CAPM)

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *The Cost of CapitalWeighted Cost of Capital:Composite Cost of Capital (kc)

DEPRECIATION ??Depresiasi tidak dimasukkan pada discounted measures (pengukuran yg didiskonto) otomatis sudah terhitung Table 9.20. Treatment of Depreciation in Discounted Measures of Project Worth p. 351NPW = 0 at i = 0 %; IRR = 0 %; NK = 1; B/C = 1 tidak merugi & tidak beruntung, seluruh biaya tertutupi Return of capital tercapai = depresiasi tertutupi jika IRR 0, B/C dan N/K = 1 pada i 0%

YearIncremental costsValue of incremental prodctionIncremental net benefitDiscount factor 0%Present worth 0%Capital itemsProduc-tionGross11,00001,0000- 1,0001.000- 1,0002--50503002501.0002503--50503002501.000250--50503002501.000250--50503002501.000250Total1,0002001,2001,20005.0000

Managerial Economics, Ch.14Managerial Economics, Ch.14January 2012Improved by NURZAMAN BACHTIAR*Improved by NURZAMAN BACHTIARManagerial Economics, Ch.14Managerial Economics, Ch.14January 2012Improved by NURZAMAN BACHTIAR*Improved by NURZAMAN BACHTIARManagerial Economics, Ch.14Managerial Economics, Ch.14January 2012Improved by NURZAMAN BACHTIAR*Improved by NURZAMAN BACHTIARManagerial Economics, Ch.14Managerial Economics, Ch.14January 2012Improved by NURZAMAN BACHTIAR*Improved by NURZAMAN BACHTIARManagerial Economics, Ch.14Managerial Economics, Ch.14January 2012Improved by NURZAMAN BACHTIAR*Improved by NURZAMAN BACHTIARManagerial Economics, Ch.14Managerial Economics, Ch.14January 2012Improved by NURZAMAN BACHTIAR*Improved by NURZAMAN BACHTIARManagerial Economics, Ch.14Managerial Economics, Ch.14January 2012Improved by NURZAMAN BACHTIAR*Improved by NURZAMAN BACHTIARManagerial Economics, Ch.14Managerial Economics, Ch.14January 2012Improved by NURZAMAN BACHTIAR*Improved by NURZAMAN BACHTIARManagerial Economics, Ch.14Managerial Economics, Ch.14January 2012Improved by NURZAMAN BACHTIAR*Improved by NURZAMAN BACHTIARManagerial Economics, Ch.14Managerial Economics, Ch.14January 2012Improved by NURZAMAN BACHTIAR*Improved by NURZAMAN BACHTIARManagerial Economics, Ch.14Managerial Economics, Ch.14January 2012Improved by NURZAMAN BACHTIAR*Improved by NURZAMAN BACHTIARManagerial Economics, Ch.14Managerial Economics, Ch.14January 2012Improved by NURZAMAN BACHTIAR*Improved by NURZAMAN BACHTIARManagerial Economics, Ch.14Managerial Economics, Ch.14January 2012Improved by NURZAMAN BACHTIAR*Improved by NURZAMAN BACHTIARManagerial Economics, Ch.14Managerial Economics, Ch.14January 2012Improved by NURZAMAN BACHTIAR*Improved by NURZAMAN BACHTIARManagerial Economics, Ch.14Managerial Economics, Ch.14January 2012Improved by NURZAMAN BACHTIAR*Improved by NURZAMAN BACHTIARManagerial Economics, Ch.14Managerial Economics, Ch.14January 2012Improved by NURZAMAN BACHTIAR*Improved by NURZAMAN BACHTIAR