FINAL EXAM FINANCIAL INSTITUTION MANAGEMENT

Name : Agas Sinatrya

NIM ; 12010119190243
Class : MLK X

I. 1. Which project will give us better NPV ?

2. Based on profitability rate, and assumed you have enough money ($6.000,000), will you
take all of these two project, or only one?
Note: use NPV and cash flow analysis

Solution of CASE PROBLEM : To maximize the net present value of the total investment in
Security Systems and Market Analysis

Decision Variables :

● S = fraction of the Security System project to be funded by HVC

● M = faction of the Market Analysis project to be funded by HVC

Objective Function : Max $1,800,000 S + $ 1,600,000M

Company Year 1 Year 2 Year 3

Security Systems $ 600,000 $ 600,000 $ 250,000

Market Analysis $ 500,000 $ 350,000 $ 400,000

HVC $ 800,000 $ 700,000 $ 500,000

Two feasible solutions:

(1) S= 77.8% ; M= 66.7%

S = 77.7777778%

M = 66.6666667%

(2) S= 60.9% ; M= 87%

S = 60.8695652%

M = 86.9565217%

Testing of solutions to get the optimal solution:

Max $1,800,000S + $1,600,000M

(1) $1,800,000(0.778) + $1,600,000(0.667) = $2,467,600

(2) $1,800,000(0.609) + $1,600,000(0.87) = $2,488,200

(2) is the optimal solution for S = 0.609 and M = 0.87 because the purpose is to maximize the net
present value of the total investment. In other words, the recommended percentage is about 61% of
security system projects funded by HVC, 87% of market analysis projects funded by HVC, and a net
present value of approximately $ 2,486,957 (S = 60.8695652% and M). Must be used). =
86.9565217% Then rounded to the nearest integer).

Two Feasible solution :

(1) S = 77.8% ; M = 66.7%

S = 77.777778% ; M = 66.6666667%

(2) S = 60.9% ; M = 87%

S = 60.8695652% ; M = 86.9565217%

To get optimal solution :

Max $1,800,000 S + $1,600,000M

(1) $1,800,000 (0.778) + $1,600,000(0.667) = $2,467,600

(2) $1,800,000 (0.609) + $1,600,000(0.87) = $2,488,200

To maximize the NPV of total investment is the optimal solution with S = 0.609 and M =
0.87. In other words, the recommended percentage is about 61% of the security systems
 project should be funded by HVC and 87% of the market analysis project should be funded by
HVC with an approximate NPV of $2,488,200 (using S = 60.8695652%; M = 86.9565217%
then rounded to the nearest whole number).

Capital Allocation plan for the coming 3-year period

*Note : S = 60.8695652% ; M = 86.9565217%

Period Security Systems ($) Market Analysis ($) Total ($)

Y1 365,217.39 434,782.61 800,000.00

Y2 365,217.39 304,347.83 669,565.22

Y3 152,173.91 347,826.09 500,000.00

In the first year, HVC must invest $ 365,217.39 in its security systems and $ 434,782.61 in
market analysis, for a total investment of $ 800,000.00. In the second year, this company will
spend the same amount on security systems as in the first year and $ 304,347.83 for market
analysis, the total investment is $ 669,565.22; in the past year, HVC can pledge $ 152,173.91
for security systems and $ 347,826.09 for market analysis, for a total of $ 500,000.00

The project that will give us the best NPV security systems because based on the capital
allocation plan for the next 3 years, HVC can commit $ 152,173.91 in the last year, which is
the latest market analysis at 60.8 %. Based on profitability and assuming if I have enough
money ($ 6,000,000) I will take all of these two projects. However, I would stick to the
original capital allocation plan without committing additional funds. Because it will be
useless and it would be better than not having extra money

II. 2.1 Your firm will either purchase or lease a new $500,000 packaging machine from the
manufacturer. If purchased, the machine will be depreciated straight line over five years. You
can lease the machine using a non-tax lease for $125,000 per year for five years with the first
payment today. Assume the machine has no residual value, the secured borrowing rate is 9%,
and the tax rate is 35%. Should you buy or lease?

2.2 Your firm will either purchase or lease a new $48,000 delivery truck. If purchased, the
truck will be depreciated straight line over 4 years. You can lease the truck using a true tax
lease for $13,000 per year for four years with the first payment today. Assume the machine
has no residual value, the secured borrowing rate is 9%, and the tax rate is 40%. Should you
buy or lease?
2.3 Your firm is considering leasing a $20,000 copy machine. The machine has an estimated
economic life of five years and your secured borrowing rate is 9% APR with monthly
compounding. Classify each lease below as a capital lease or operating lease for financial
accounting reporting. [A] A five-year fair market value lease with payments of $400 per
month. [B] A three-year fair market value lease with payments of $500 per month.

Solution of LEASING :

1. With the lease payments that you could borrow :

125,000 125,000 125,000 125,000

𝑁𝑃𝑉 = 125, 000 + 1.09
+ 2 + 3 + 4 = $529, 965
1.09 1.09 1.09

Thus, you should borrow since you could raise more than $500,000 with those payments.

2. Determine the cash flow consequences of buying the truck

0 1 2 3 4

Capital Exp. -50,000 - - - -

Depr. Tax 4,800 4,800 4,800 4,800

Free Cash F. -50,000 4,800 4,800 4,800 4,800

Determine the cash flow of leasing versus buying

0 1 2 3 4

Lease Pay. -13,000 -13,000 -13,000 -13,000 -

Less : Free C.F 5,200 5,200 5,200 5,200 -

Lease - Buy -7,800 -7,800 -7,800 -7,800

Determine the incremental cash flow of leasing vs buying

0 1 2 3 4

Free Cash F. Lease -7,800 -7,800 -7,800 -7,800 -

 Less : Free C.F -50,000 4,800 4,800 4,800 4,800
buy

Lease - Buy 42,200 -12,600 -12,600 -12,600 -4,800

Determine the NPV of leasing vs buying using the incremental cash flows
The after-tax borrowing rate is 9%(1-0.35) = 5.85%

−12,600 −12,600 −12,600 −4,800

𝑁𝑃𝑉 = 42, 200 + 1.0585
+ 2 + 3 + 4 = $4, 603
1.0585 1.0585 1.0585

You are better off leasing, since NPV of leasing is greater than zero.
3. The present value of the minimum lease payments at the start of the lease is 90% or more
of the asset’s fair market value.

a) The present value of the lease payments is :

𝑃𝑉 (𝐿𝑒𝑎𝑠𝑒 𝑃𝑎𝑦𝑚𝑒𝑛𝑡 = $400 + $400 + ( 1

0.0075
−
1
0.0075(1.0075)
59 ) = $19, 4133. 87
This represent 19.4 / 20 = 97% of the value of the machine. So it is a capital lease.

b) The present value of the lease payment is :

𝑃𝑉 (𝐿𝑒𝑎𝑠𝑒 𝑃𝑎𝑦𝑚𝑒𝑛𝑡 = $500 + $500 + ( 1

0.0075
−
1
0.0075(1.0075)
59 ) = $15, 841
This represent 15.8/20 = 79.2% of the values of the machine and no other condition is
met, so it is an operating lease.

III. Please propose simple analysis of bank performance based on CAMEL-ratio and
Yusuf Rombe M. Allo research, are there worse or better condition Bank BTPN 2018
compare with 2021.

Solution of BANK BPTN FINANCIAL DATA (Annual Report 2021)

● Loans to Deposit Ratio

 Year Loans to Growth
Deposit
2018 96.2 -
2019 163.0 66.8%
2020 134.2 -28.8%
2021 123.1 -11.1%
● ROE
Year ROE Growth
2018 11.6 -
2019 9.9 -1.7%
2020 6.1 -3.8%
2021 8.6 2.5%
● BOPO
Year BOPO Growth
2018 80.1 -
2019 83.4 3.3%
2020 89.5 6.1%
2021 80.5 -9%

Based on research by Yusuf Rombe M. Allo that growth in financial performance of

PT. BPTN is down from a liquidity perspective given that 2020 and 2021
underperformed in 2019, namely LDR. There is a gap between liquidity and
profitability as PT grows. BPTN decreased from 2020 to 2021, and on the other hand,
the profitability performance growth increased from 2021.

CAMEL RATIO :

● Return on Equity (ROE) In Indonesia bank with a good profitability at

minimum of 12%.

ROE > 12% company has good profitability.

ROE < 12% company doesn’t have good profitability.

● Loan to Deposit Ratio (LDR) :

LDR 78-100% company has good credit to deposit ratio.

LDR < 100% > company doesn’t have a good credit to deposit ratio.

Based on the CAMEL ratio, it can be concluded that the ROE in PT. BPTN does not
have good profitability as the value is less than 12%. Furthermore, the LDR of PT.
BPTN does not have a good credit / deposit ratio because its value is less than 100%.
Consequently, the PT. BPTN is not in good shape in terms of financial performance
as it is profitable and liquid.