Kamis, 15 Juli 2010

Project Evaluation: Alternative Methods

Project Evaluation: Alternative Methods
-Payback Period (PBP)
-Internal Rate of Return (IRR)
-Net Present Value (NPV)
-Profitability Index (PI)
PBP = a + ( b - c ) / d
= 3 + (40 - 37) / 10
= 3 + (3) / 10
= 3.3 Years
PBP Strengths and Weaknesses
Strengths:
Easy to use and understand
Can be used as a measure of liquidity
Easier to forecast ST than LT flows

Weaknesses:
Does not account for TVM
Does not consider cash flows beyond the PBP
Cutoff period is subjective
IRR is the discount rate that equates the present value of the future net cash flows from an investment project with the project’s initial cash outflow
Net Present Value (NPV)
NPV is the present value of an investment project’s net cash flows minus the project’s initial cash outflow.
NPV Strengths and Weaknesses
Strengths:
Cash flows assumed to be reinvested at the hurdle rate.
Accounts for TVM.
Considers all cash flows.

Weaknesses:
May not include managerial options embedded in the project. See Chapter 14.

Payback period didefinisikan sebagai ekspektasi lama interval waktu yang dibutuhkan oleh cashflow dari proyek untuk mengembalikan investasi awal (initial outlay).

Net present value adalah present value dari cashflow yang dihasilkan oleh proyek dikurangi dengan initial outlay

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