The Analysis of Capital Budgeting Model for the Overland Conveyor and Ship Loading Facilities Project of PT ABC

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Hedianto, Dasep and Daryanto, Wiwiek Mardawiyah (2019) The Analysis of Capital Budgeting Model for the Overland Conveyor and Ship Loading Facilities Project of PT ABC. International Journal of Business, Economics and Law, 19 (1). pp. 30-39. ISSN 2289-1552

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The need for energy is one of the global needs. One source of energy is coming from coal conversion as a non-renewable energy resource with a low cost. Today, coal continues to be one of the most important source of electricity fuel in Indonesia. This is one of the main reasons for the business continuation and expansion of coal mining companies. PT ABC (the Company) is a coal mining infrastructure service provider that have been engaged with certain coal mining companies (the Client) for the utilization of the coal processing, transportation, and ship loading facilities based on rental contract. To continue serving its clients’ needs with regards to the new area expansion, the Company have been starting to study the feasibility of new Overland Conveyor (OLC) and Ship Loading Facilities (SLF) project. The purpose of this study is to determine the feasibility of the OLC and SLF project and to examine the optimum project financing alternatives whether by fully equity-funded or by the combination between debt and equity. The capital budgeting model indicators: Payback Period, Return on Investment (ROI), Net Present Value (NPV), Discounted Payback Period, Profitability Index and Internal Rate of Return (IRR) were used to analyze the data, and sensitivity analysis. The analysis was done with three scenario includes 100% equity, Debt/Equity or D/E : 41%/59% and D/E : 80%/20%. Based on those analysis, it leads to the conclusion that the project is feasible for all the three scenarios of financing. The result shows the project has the lowest indicators’ value with the fully equity-funded and produced higher value if the debt to equity ratio is higher. The sensitivity analysis was done to evaluate the volatility of relevant variables which might be affected the capital budgeting analysis result. Keywords: Capital Budgeting, Net Present Value, Overland Conveyor, Sensitivity Analysis, WACC

Item Type: Article
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HE Transportation and Communications
H Social Sciences > HF Commerce > HF5601 Accounting
H Social Sciences > HG Finance
Divisions: Research And Community Empowerment > Journals
Depositing User: Rizky Amalia
Date Deposited: 27 Jan 2020 06:44
Last Modified: 19 Feb 2021 05:19

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