INVESTMENT ASSESMENT

METHOD
DR.H. POPO SURYANA,S.E.,M.SI.
FACULTY OF ECONOMIC & BUSINESS
UNIVERSITAS PASUNDAN
 Project Proposal Appraisal
2

1. Average Rate of Return (ARR)

Method
2. Payback Period Methode
3. Net Present Value (NPV) Method
4. Internal Rate of Return (IRR)
Method
5. Profitability Index Method
DR.H. Popo Suryana,SE,MS, Busness Feasibility 05/06/2021
Study, FEB Unpas
 ARR METHOD
 Measure how much the average profit gained from an
investment. After-tax profit is compared to the total or average
investment. This figure is compared to the required rate of profit.
If it is greater than the required level of profit, the project is said
to be feasible.

For Example :
 A project that requires investments in fixed assets of Rp 800 and

working capital of Rp 200. fixed assets is estimated to have an

economic life of 8 years, with no residual value, and is depreciated
using the straight-line method. Income from sales of Rp 1,500 per
year. Operational cost Rp 1000 per year. Tax rate of 35%. Calculate
ARR?

DR.H. Popo Suryana,SE,MS, Busness Feasibility Study, 05/06/2021

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 Sales Revenue Rp 1.500
Operating cost Rp 1000
Depreciation (800/8) Rp 100 Rp 1.100
EBIT Rp 400
Taxes 35% Rp 140
EAT Rp 260
Rp 260
ARR= ------------ x 100% = 26 %
Rp 1000

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 5
The above results are based on initial investment, if average
investment is used. Funds embedded in fixed assets are reduced
annually by Rp 100 as depreciation. Thus the average investment in
fixed assets is
(Rp. 800 + 700 + 600 + 500 + 400 + 300 + 200 + 100 + 0): 9 = Rp.
400. while the working capital is Rp. 200, so the average investment
is Rp. 400 + 200 = Rp. 600

ARR = Rp 260 / Rp 600 x 100% = 43.33%

This method is easy to use, the disadvantages are:

- ignoring the time value of money,
-use profit not cash flow

DR.H. Popo Suryana,SE,MS, Busness Feasibility 05/06/2021

Study, FEB Unpas
 PAYBACK PERIOD METHOD
This method measures how quickly investment can return.
Therefore the unit is time (month, year, etc.). If the results of the
calculation are shorter than required, the project is called feasible.
I
Payback = ------- x 1 year = ....... year
CF
The weakness of this method is the difficulty of determining the
required recovery time, but can use similar projects.
Another disadvantage is:
- neglected value of time money
- ignored cash flow after the payback period
the advantage is simple in calculation, besides that can be used to
predict the smoothness of finance to face liquidity.

DR.H. Popo Suryana,SE,MS, Busness Feasibility Study, 05/06/2021

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 example :
There are three projects A, B and C, each of which
requires an investment of Rp. 1000, as well as a cash
flow pattern for the three projects as follows:
Years Proyect A Proyect B Proyect C
1 600 100 250
2 500 200 250
3 200 300 250
4 100 400 250
5 100 500 250
6 100 600 250

DR.H. Popo Suryana,SE,MS, Busness Feasibility

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 NPV METHOD
8

This method calculates the difference between the

present value of the investment and the present
value of cash flows (operations and terminals) in
the future. For calculation, the interest rate is
needed as a discount rate or interest factor. If the
NPV is positive then the project is feasible.
NPV = CFt / (1 + i) t - I
For example use the example project A, B, C
assuming an interest rate of 10% if the project is
feasible.
DR.H. Popo Suryana,SE,MS, Busness Feasibility 05/06/2021
Study, FEB Unpas
IRR METHOD
This method calculates the interest rate which
equates the present value of investment with the
present value of future cash flow. If the IRR is
greater than the market interest rate or required,
the project is feasible.
For examples of using projects A, B, and C. Is
the project feasible?
To find the right interest rate used interpolation:
NPV1
 i = i1 + ----------------- (i2-i1)

(NPV2-NPV1)
DR.H. Popo Suryana,SE,MS,
Busness Feasibility Study, FEB
Unpas 05/06/2021 9
PROFITABILITY INDEX METHOD
This method calculates the comparison between the
present value of cash flow and the present value of the
investment. If the PI value is greater than 1, then the
project is considered feasible.
CFt
(1+i)t
PI = -------
I
or
PI = PV/I
DR.H. Popo Suryana,SE,MS, Busness Feasibility
05/06/2021 Study, FEB Unpas 10
MENGHITUNG METODE PAY BACK

=IF(B18=0,B16&" Tahun ",IF(B16<=1,12-

B18&" Bulan ",B16-1&" Tahun "&12-B18&" Bulan "))
Fungsi ini membutuhkan fungsi bantuan pada sel B16 dan B18

=IF(B11>=B13,"Proyek Diterima Kelayakannya","Proyek Ditolak

Kelayakannya")

=IF(B6>B4,1,IF(SUM(B6:B7)>B4,2,IF(SUM( B6:B8)>B4,3,4)))
Ini adalah fungsi bantuan untuk menghitung payback period pada sel
B11

=IF(B6>B4,(B6- B4)/B6,IF(SUM(B6:B7)>B4,(SUM(B6:B7)-
B4)/B7,IF(SUM(B6:B8)>B4,(SUM(B6:B8)-
B4)/B8,(SUM(B6:B9)-B4)/B9)))*12
Ini adalah fungsi bantuan untuk menghitung payback period
pada sel B11

DR.H. Popo Suryana,SE,MS, Busness Feasibility

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MENGHITUNG ROI

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MENGHITUNG NPV

=NPV(B11,B6:B9)-B4

=IF(B13>0,"Proyek Diterima
Kelayakannya","Proyek Ditolak Kelayakannya")

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05/06/2021 Study, FEB Unpas 13
MENGHITUNG IRR

=IRR(B4:B8,B10)

=if(B11>=B10,”Proyek Diterima Kelayakannya”,”Proyek

Tidak Diterima Kelayakannya”)

DR.H. Popo Suryana,SE,MS, Busness Feasibility

05/06/2021 Study, FEB Unpas 14
 Present Value Interest Factore (PVIF)
N IF 10% IF15% IF20% IFA10% IFA15% IFA20%

1 0,90909 0,86957 0,83333 0,9091 0,8696 0,8333

2 0,82645 0,75614 0,69444 1,7355 1,6257 1,5278

3 0,75131 0,65755 0,57870 2,4868 2,2832 2,5278

4 0,68301 0,57175 0,48225 3,1699 2,8550 2,5888

5 0,62092 0,49718 0,40188 3,7908 3,3522 2,9906

6 0,56447 0,43233 0,33490Busness4,3553

DR.H. Popo Suryana,SE,MS, Feasibility 3,7845 3,3255
05/06/2021 Study, FEB Unpas 15