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
0
1
Initial Investment
10.000
2
3
4
5
Initial Investment for Replacement.
+
Cost of new assets
Installation costs
Page 1 of 11
- 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
Page 2 of 11
POLA ALIRAN KAS
TYPE
Conventional
Conventional
Conventional
Non Conventional
Non Conventional
Non Conventional
SIGN ON NET CASH FLOW
0 1 2
3
4
5
6
- + +
+
+
+
+
+
+
+
+
+ + +
+
+
- + +
+
+ + +
+
- + +
+
+
NUMBER OF
SIGN CHANGE
1
1
1
2
2
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
Biaya surat-surat
Modal kerja
Initial Investment
Net Operating Cash Inflow
Pendapatan
Biaya Operasi
Biaya depresiasi
Laba Operasi
Bunga
Laba Sebelum Pajak (EBT)
Pajak 10 %
Laba Setelah Pajak
Depresiasi
Net Operating Cash Inflow (Proceeds)
Rp 1.000.000.000,00
Rp
5.000.000,00
Rp
5.000.000,00
Rp 1.010.000.000,00
Rp
Rp
Rp
Rp
Rp
Rp
Rp
Rp
Rp
300.000.000,00
50.000.000,00
100.000.000,00
150.000.000,00
0,00
150.000.000,00
15.000.000,00
135.000.000,00
100.000.000,00
235.000.000,00
Page 3 of 11
Terminal Cash Flow.
Hasil Penjualan Bus
Pajak Penjualan 10 %
Net Cash Flow
Rp
Rp
Rp
Annuity = Rp
1
2
Rp 1.010.000.000,00
II.
3
4
5
6
50.000.000,00
5.000.000,00
45.000.000,00
Rp
235.000.000,00
7
8
45.000.000,00
9
10
Proyek Penggantian.
Perusahaan XYZ sedang mempertimbangkan untuk mengganti mesin lama dengan mesin
baru.
Harga beli mesin baru
Biaya instalasi mesin
Umur ekonomis
Rp 380.000,00
Rp
20.000,00
5 tahun
Harga beli mesin lama 3 tahun yang lalu
Harga jual mesin lama saat ini
Umur ekonomis
Rp 240.000,00
Rp 280.000,00
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
Biaya instalasi mesin
Proceeds penjualan mesin lama
Pajak penjualan mesin lama *)
Perubahan modal kerja bersih
Initial Investment
Ket:
Rp
Rp
Rp
Rp
Rp
Rp
380.000,00
20.000,00
280.000,00
18.400,00
17.000,00
155.400,00
*) Nilai buku mesin lama 240.000 – 144.000 = Rp 96.000,00
Pajak 10% (280.000 – 96.000) = Rp 18.400,00
Page 4 of 11
Net Operating Cash Inflow.
Selanjutnya diketahui bahwa estimasi pendapatan dan biaya per tahun diluar depresiasi
untuk kedua mesin selama 5 tahun sebagai berikut:
TAHUN
1
2
3
4
5
TH
1
2
3
4
5
TH
1
2
3
4
5
TH
1
2
3
4
5
MESIN
PENDAPATAN
Rp 2.520,00
Rp 2.520,00
Rp 2.520,00
Rp 2.520,00
Rp 2.520,00
MESIN BARU
PENDAPATAN
BIAYA
Rp 2.520,00
Rp 2.520,00
Rp 2.520,00
Rp 2.520,00
Rp 2.520,00
MESIN
PENDAPATAN
Rp 2.200,00
Rp 2.300,00
Rp 2.400,00
Rp 2.400,00
Rp 2.250,00
NO
MESIN BARU
Rp 206,00
Rp 206,00
Rp 206,00
Rp 206,00
Rp 206,00
Rp 2.300,00
Rp 2.300,00
Rp 2.300,00
Rp 2.300,00
Rp 2.300,00
LAMA
BIAYA
Rp 1.990,00
Rp 2.110,00
Rp 2.230,00
Rp 2.250,00
Rp 2.120,00
BARU
BIAYA
Rp 2.300,00
Rp 2.300,00
Rp 2.300,00
Rp 2.300,00
Rp 2.300,00
MESIN
PENDAPATAN
Rp 2.200,00
Rp 2.300,00
Rp 2.400,00
Rp 2.400,00
Rp 2.250,00
LABA
SEBELUM
DEP. &
PAJAK
Rp 220,00
Rp 220,00
Rp 220,00
Rp 220,00
Rp 220,00
Rp 80,00
Rp 80,00
Rp 80,00
Rp 80,00
Rp 80,00
Rp 140,00
Rp 140,00
Rp 140,00
Rp 140,00
Rp 140,00
Rp 14,00
Rp 14,00
Rp 14,00
Rp 14,00
Rp 14,00
Rp 206,00
Rp 206,00
Rp 206,00
Rp 206,00
Rp 206,00
Rp 210,00
Rp 190,00
Rp 170,00
Rp 150,00
Rp 130,00
Rp 48,00
Rp 48,00
Rp 0,00
Rp 0,00
Rp 0,00
Rp 162,00
Rp 142,00
Rp 170,00
Rp 150,00
Rp 130,00
Rp 16,20
Rp 14,20
Rp 17,00
Rp 15,00
Rp 13,00
Rp 193,80
Rp 175,80
Rp 153,00
Rp 135,00
Rp 117,00
CIF
MESIN LAMA
Rp 193,80
Rp 175,80
Rp 153,00
Rp 135,00
Rp 117,00
DEPRE
SIASI
Rp
Rp
Rp
Rp
Rp
LAMA
BIAYA
1.990,00
2.110,00
2.230,00
2.250,00
2.120,00
NOCIF
EBIT
PAJAK
10%
RELEVANT CASH FLOW
Rp
Rp
Rp
Rp
Rp
12,20
30,20
53,00
71,00
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
Pajak penjualan mesin baru
Perubahan modal kerja bersih
Terminal Net Cash In Flow
Rp
Rp
Rp
Rp
50.000,00
5.000,00
17.000,00
23.000,00
Page 5 of 11
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.

Initial Investment
In the case of annuity, Payback period = The Annual Cash Inflows

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
Initial Investment
Year
1
2
3
4
5
Average


A
$ 42,000.00
B
$ 45,000.00
$ 14,000.00
$ 14,000.00
$ 14,000.00
$ 14,000.00
$ 14,000.00
$ 14,000.00
$ 28,000.00
$ 12,000.00
$ 10,000.00
$ 10,000.00
$ 10,000.00
$ 14,000.00
Project A has annual cash inflows.
$ 42.000
Initial Investment
Payback period = The Annual Cash Inflows =
= 3 years
$ 14.000
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
Page 6 of 11
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
CFt
NPV = 
t – Initial Investment
(1+k)
t 1
Annual cash inflows
PVIFA, 10%, 5 years
PV of cash inflows
Initial Investment
NPV
Year
1
2
3
4
5
NPV calculation for Project A
$ 14,000.00
3.791
$ 53,074.00
$ 42,000.00
$ 11,074.00
NPV calculation for Project B
Cash Inflows
PVIF, 10%, 5 Years
$ 28,000.00
0.909
$ 12,000.00
0.826
$ 10,000.00
0.751
$ 10,000.00
0.683
$ 10,000.00
0.621
PV of cash inflows
Initial Investment
NPV
PV
$ 25,452
9,912
7,510
6,830
6,210
$ 55,914
$ 45,000
$ 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
0=

t 1
CFt
– Initial Investment
(1+IRR)t
n
OR

t 1
CFt
= Initial Investment
(1+IRR)t
Page 7 of 11
IRR = k1 +
NPV1
(k – k1)
NPV1 - NPV2 2
Example.
Capital expenditure data for Barnet Company.
Project
Initial Investment
Year
1
2
3
4
5
Average
A
$ 42,000.00
B
$ 45,000.00
$ 14,000.00
$ 14,000.00
$ 14,000.00
$ 14,000.00
$ 14,000.00
$ 14,000.00
$ 28,000.00
$ 12,000.00
$ 10,000.00
$ 10,000.00
$ 10,000.00
$ 14,000.00
 In the case of annuity
Project A
$14,000.00
$14,000.00
$14,000.00
$14,000.00
$14,000.00
1
2
3
4
5
PV of cash
inflows
Initial Investment
k1 = 18%
11864.40678
$11,666.67
10054.58202
$9,722.22
8520.832218
$8,101.85
7221.044252
$6,751.54
6119.529027
$5,626.29
43780.39429
42,000
41868.56996
42,000
1,780
-131
NPV
IRR = k1 +
k2 = 20%
NPV1
(k – k1)
NPV1 - NPV2 2
IRR = 18% +
1.780
(20% – 18%)
1.780 - (-131)
IRR = 19,8%
Page 8 of 11
Project B
$28,000.00
$12,000.00
$10,000.00
$10,000.00
$10,000.00
1
2
3
4
5
PV of cash
inflows
Initial Investment
NPV
k1 = 18%
k2 = 22%
23728.81356
22950.81967
8618.213157
8062.348831
6086.308727
5507.068874
5157.888752
4513.99088
4371.092162
3699.992525
47962.31636
45,000
44734.22078
45,000
2,962
-266
NPV1
(k – k1)
NPV1 - NPV2 2
2.962
IRR = 18% +
(22% – 18%)
2.962 - (-266)
IRR = 21,6%
IRR = k1 +
Comparing NPV and IRR Techniques.
For conventional projects, NPV and IRR will always generate the same acceptreject 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
0%
10%
20%
22%
NPV
A
$ 28,000.00
11,074.00
0
B
$ 25,000.00
10,914.00
-131
0
1295
Page 9 of 11
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.
Discount Rate
Low
High
CASH INFLOW PATTERN
Lower Early Year Cash Higher Early Year Cash
Inflows
Inflows
Preferred
Not Preferred
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.
Page 10 of 11

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 * (PVIFAk,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 * (PVIFAk,n) – Initial Investment > 0
CIF * (PVIFA10%,15) – 10,000 > 0
CIF * (7.606) – 10,000 > 0
CIF >
10.000
= $ 1,315
7.606
Assume that the analysis results as follows:
 Probability of CIFA > $1,315
100%
 Probability of CIFB > $1,315
60%
Project A less risky than project B.
Page 11 of 11