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slide 1
Alternative 1 produces Rp 30 millions in one year and another Rp 60 millions a year later.

Alternative 2 produces Rp 92 millions in one year.

Which alternative is more viable if the discount rate is 9% if the investment in alternative 1 is Rp 70 millions and alternative 2 is Rp 72 millions?
(assuming this investment is paid at the start of the project)


slide 2
(if part of the capital investment was to be paid later then it needs to be discounted to the present value)

The present value for Rp 30 mil in 1 year is:
30 mil x 1/(1+0.09)¹ = 27,522,935

The present value for Rp 60 mil in 2 year is:
60 mil x 1/(1+0.09)2 = 50,500,799

The total present value for the alternative 1 is:
27,522,935 + 50,500,799 = 78,023,734


slide 3
The present value for Rp 92 mil in 1 year is:
92 mil x 1/(1+0.09)1 = 84,403,669

Net Present Value = Present Cost Value + Present Benefit Value

Alternative 1: -70 mil + 78,023,734 = 8,023,734
Alternative 2: - 72mil + 84,403,669 = 12,403,669

 Alternative 2 has a higher benefit


slide 4
A project requires an investment of Rp 100 millions and the expected inflows are Rp 70 millions in a year, Rp 80 millions a year later and Rp 20 millions in the third year.

It is forecasted that the bank deposit interest rate will be 10% per year for the next three years.

If the IRR is 30%, should the project be accepted or rejected?


slide 5
-100 mil + 70 mil/(1+0.3)¹ + 80 mil/(1+0.3)² + 20 mil/(1+0.3)³

= -100 mil + 53,846,154 + 47,337,278 + 9,103,323

= 10,286,755

The project should be accepted because the money invested in the project have a positive (+) IRR and it is more than the interest rate available if the cash was deposited in the bank.


slide 6
You can obtain Net Present Value by netting the present value of the future benefits with the present value of the costs, with costs being negative and sales positive.

Profitability ratios give measure of the profitability of the business or the project

Liquidity ratios provide information about a firm’s ability to meet its short-term financial obligations.


slide 7
Intangible assets are assets that can’t be seen but nevertheless exist; such as goodwill, copy-rights and intellectual property.

The varieties of approaches to measure business potential are the technical feasibility, environmental feasibility, financial feasibility, market feasibility.

The elements of doing a feasibility analysis are trends, consumers, competition, and company.


slide 8
After the Business Feasibility Study Report has been completed and presented, the next steps that should be taken are to carefully study and analyze the conclusions and underlying assumptions and to decide which course of action to pursue, such as choosing the most viable business model, developing a business plan and proceeding with creating and operating a business.

The upward-moving trends indicate growth in particular markets.


slide 9
Does an entrepreneur always has to market products based on upward-moving trends?
It depends. It certainly easier to market product in a category that is experiencing increasing demand. If the market is growing, entrepreneurs can acquire new customer.
If the market is not growing, entrepreneurs are required to attract existing customers (and their money) from existing competition. The latter is a difficult task.
It is no secret in marketing that it is nine times easier to retain a customer than it is to convert an existing customer to your product. Converting an existing customer takes a great deal of money, advertising, and a distinct competitive advantage.
Lacking effective advertising (before and after the sale ) and a clear competitive advantage will make market entry nearly impossible.
If market entry doe not look favorable, overall feasibility does not either.