Presentation on theme: "Muhammad Lutfi - 120820080062. Net Present Value (NPV) merupakan kriteria yang paling paling penting yang direkomendasikan secara akademik untuk memutuskan."— Presentation transcript:
Net Present Value (NPV) merupakan kriteria yang paling paling penting yang direkomendasikan secara akademik untuk memutuskan apakah akan menerima suatu proyek atau tidak. Diperoleh dengan mengurangi biaya investasi awal dari present value arus kasnya. Internal Rate of Return (IRR) merupakan teknik yang telah digunakan secara luas. Aturan pengambilan keputusan yang umum dalam menerima sutau proyek adalah jika proyek tersebut memiliki IRR minimal sama dengan tingkat perolehan yang diharapkan, r. Payback Rule didefinisikan sebagai waktu yang dibutuhkan sejumlah arus kas dimasa mendatang untuk menutupi biaya investasi awal. Biasanya metode ini mendapatkan kritikan karena tidak didasarkan atas nilai.
75% dari CFO menggunakan metode IRR 75% dari CFO menggunakan metode NPV 57% dari CFO menggunakan Payback Rule Critics of Payback Rule: 1. Ignores time value of money 2. Attaches zero weight to cash flow after payback periode
1987, Motorola’s Engineer conceive of idea using a global satelite system to build a worldwide telephone network Engineer proposed the project to Executives: Robert Galvin (CEO). Galvin approved project with subjective judgement Iridium project required $5 billion over 11 years Iridium was commercial failure, had filed bankruptcy protection and was sold to private investors.
Iridium project illustrates the perils of relying on intuitive judgement when making capital budgeting decisions. a bingo cage containing 36 balls, number from 1 – 36, consider 2 risky alternatives! if the number 29 or less, win $20, otherwise lose $0 if the number 30 or more, win $90, otherwise lose $0 Managers who dont base decisions on NPV, but instead rely on subjective judgment, are prone to preference reversal.
Overconfidence leads managers to be surprised more frequently than they had anticipated. Overconvidence leads managers to underestimate project risk. Contributor of overconvidence decisions about capital budgeting: 1. Perceived control 2. Inadequate planning and risk management
Motorola’s executives underestimated the risk associated with the number of costumers. Potential costumer 8 million people, inquiries 1,5 million peopler, but only 20.000 subscriber! Why? 1. Indoor /Outdoor 2. Cellular competition 3. Size 4. Cost
Leads managers to develop upwardly biased forecast of project cash flows 1. Public Sector Projects; military spending on war, ‘Big Dig’ tunnel, Denver Airport, European Rail 2. Private Sector Projects; Channel Tunnel
Psychological determinants: 1. Control 2. Familiarity and Representativeness 3. Desirability and Wishfull Thinking 4. Anchoring and Adjustment Agency Conflict Determinants
Errors on biases: preference reversal, overconfidence, excessive optimism Why: perceived control and excessive optimistic. Familiarity representativeness, anchoring, wishful thinking make the combination What can be done: differentiate between inside that focus on project details and the outside view to recall as many projects as they can, both at their firm and outside their firm
Important question: 1. Proportion of budget 2. Proportion of shedule 3. Rank of our abilities 4. Cash flow forecast preparation 5. The forecast that too bold 6. Reasonable capital budgeting or excessively optimistic and overconfident
1961, sony began to develop a color television based on chromatron picture tube 1964, Ibuka’s team had succeded in developing prototype. However, they hadn’t developed a commercially viable manufacturing process. Ibuka commited Sony to mass produce color television sets before his engineer had developed a cost effective mass production process Sony invested in a new facility to house the production assembly Production process yield only 2 0r 3 usable picture tubes per thousand produced! Morita wanted to terminated the project, Ibuka refused 1966, Sony’s financial managers announced that Sony was close to ruin, only then Ibuka agree to terminate the project
Aversion to a sure loss Escalation commitment Visibility Regret Agency conflict
1977, Gabriel Garay led a team that created a new drug, Enprosil, designed to turn off production of stomach acid and thereby heal stomach ulcers. Enprosil conservatively forecast to generate sales of $50 million to $100 million a year Researchrs in Garay’s lab found enprosil tend to make blood platelets clot in the test tube, posing possible risk of stroke or heart attack This information was characterized as inflammatory, speculative and irrelevant 1986, several dogs involved in some enprostil animal had died because the drug 1987, researchers reported having discovered the mechanism underlying enprostil 1988, FDA told that enprostil couldnot win broad market approval, Syntex withdraw its application.
Errors on biases: reluctant to terminate failing projects Why: aversion to a sure loss, regret, confirmation bias How: people become risk-seeking when facing the prospect of a sure loss. Experience regret, which make it difficult to admit to having make a mistake. Overweight information that confirms their views and underweight that disconfirms their views
What can be done? important question: 1. Define what would constitute succes or failure for this project 2. Has the definition change since the time the project begin 3. Troble hearing other people’s concern about the project 4. Concern about the welfare about the project than the organization 5. Would i support or terminate it