MBA YP54B

ITB School of Business and Management

Young Proffesional Lead the

Future

MM5007
Financial Management
Case Summary: The Investment

Detective
SYNDICATE 8
Fania Anindita

29115695

Ikrar Ekasatya
M Iqbal Fuad S

29115539

Nadya Rizkita

29115630

Rais Kandar

29115663

Randi Darmasaputra 29115687

Wijayanti Putri

29115679

1st Semester 2016/2017

MASTER OF BUSINESS ADMINISTRATION

School of Business & Management

INSTITUTE TEKNOLOGI BANDUNG

Exhibit 1 Project Free Cash Flow

Project Number

Initial Investment
Year
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

$ (2,000,000.00) $ (2,000,000.00) $ (2,000,000.00) $ (2,000,000.00) $ (2,000,000.00) $ (2,000,000.00) $ (2,000,000.00) $ (2,000,000.00)

$

330,000.00 $

$
$

330,000.00
330,000.00

1,666,000.00

160,000.00

280,000.00 $

334,000.00
165,000.00

$
$

200,000.00
350,000.00

$
$

280,000.00
280,000.00

$
$

900,000.00
300,000.00

$
$

(60,000.00)
60,000.00

$
$
$

330,000.00

395,000.00

280,000.00

90,000.00

350,000.00

330,000.00
330,000.00

$
$

432,000.00
440,000.00

$
$

280,000.00
280,000.00

70,000.00

$
$

700,000.00
1,200,000.00

330,000.00

442,000.00

280,000.00

2,250,000.00

1,000,000.00

$
$

444,000.00
446,000.00

$
$

280,000.00
280,000.00

448,000.00

280,000.00

$
$

450,000.00
451,000.00

$
$

280,000.00
280,000.00

451,000.00

280,000.00

$
452,000.00 $
$ (2,000,000.00) $

280,000.00
280,000.00
2,560,000.00 $

4,150,000.00

560,000.00 $

2,150,000.00

$
$

$ 10,000,000.00

Sumof CFbenefits

3,310,000.00 $

Excessof CF
overInitial Investment

1,310,000.00

2,165,000.00

$ 10,000,000.00 $

165,000.00 $

8,000,000.00 $

3,561,000.00 $

4,200,000.00 $

1,561,000.00 $

2,200,000.00

2,200,000.00 $

2,200,000.00 $

200,000.00

1,200,000.00 $

1. Can you rank the projects simply by inspecting the cash flows?

It is possible to rank the projects according to their cash flows, but it will not
be close to a full-proof analysis. Taking a projects cash flow into
consideration only gives a glimpse of the excess cash flow a company can
profit from over their initial investment.

The firm stated in the case that it assumed a ten percent discount rate, so
taking a look at the cash flows could help narrow their decision down if they
are looking for a return of ten or greater.

Exhibit 2 Project Free Cash Flow discounted at 10% and cumulated

(350,000.00)

Ultimately, however, simply analyzing the cash flows does not take into
account the time value of money and should not be used as a direct
decision maker as different firms are going to have different needs for cashon-hand. Taking this into consideration, then, we feel the best cash flows,
from best to worst, would be: 3, 5, 8, 4, 1, 7, 6 and 2. This choice was made
by seeing which projects had the greatest excess of cash flow over their initial
investment.

2. What criteria might you use to rank the projects? Which

quantitative ranking method is better? Why?

There are a few criteria that one could use to rank the projects beyond the
simplistic analysis mentioned.

These approaches include the payback

period (PP), net present value (NPV), internal rate of return (IRR), and the

profitability index (PI).

The payback period does not take the time value of money into
consideration and this method ignore cash flows after the original

investment has been paid off.

The IRR method yields very similar results in comparison to using an
investments NPV but has a few cons such as possible multiple rates of
returns, changes in discount rates, and IRRs inability to be added together.

Lastly, the Profitability Index and NPV methods yield very similar results as
well, but the PI method is utilized as a ratio. Although they are very similar,
given the research our group has conducted we feel that the NPV is the most
popular method used by firms due to its simplicity and consideration of the
time value of money and, due to this, would be the approach we would
recommend most.

3. What

is

the

ranking

you

found

by

using

quantitative methods? Does this ranking differ

from the ranking obtained by simple inspection
of the cash flows?

The result is differs from the cash flow inspection as we can seen above.
We conclude the ranking by using weighted ranking from the NPV, IRR, and
Payback Period of each project.
As can be seen above, we didnt conclude project number 8 to be included on our
recommendation. The reason is because we can only choose to invest one from
either project number 7 and 8. We decided to invest on project 7 because it has
better ranking based on it NPV, IRR, and PP compared to project number 8.
So the Final 4 recommendations are:
#1 Project 3
#2 Project 4
#3 Project 7
#4 Project 1

4. What kinds of real investment projects have

cash flows similar to those in Exhibit 1?
Project 1 Reksa Dana berjangka
Project 2 Lembaga Survey
Project 3 Serial ORI (Obligasi)
Project 4 Bio Mass
Project 5 Investasi bidang property
Project 6 Reksa Dana 1 thn
Project 7 Pengerukan kapur (Galian C)
Project 8 Perkebunan Jati sengon 3 thn