Three Corporate Finance Practices in Pakistan: A Review of Previous Studies and Way Forward

This study reviews the empirical studies arranged on Pakistani capital market and specifies the pattern of three corporate finance practices. The subject of corporate finance discusses the various activities performed at firm level such as capital budgeting, capital structure, and dividend payout policy. The capital budgeting technique consists of six methods i.e., net present value, discounted cash flow, payback period, and internal rate of return etc. but Pakistani firms often interested in net present value and internal rate of return for capital investment evaluation. Similarly, the capital structure decision carries the debate on two options of financing i.e., debt financing and equity financing but literature shows that the Pakistani firms generally follow the pecking order theory and prefer more debt financing. Similarly, as for concern dividend payout policy, literature discusses the different theories and determinants but still unable to generalize the dividend payout trend specifically in Pakistani context. Corporate managers and policymakers can use the conclusion for strategic purposes.

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Inconsistencies In Textbook Presentation Of Capital Budgeting Criteria

Journal of College Teaching & Learning (TLC) ◽

10.19030/tlc.v2i5.1826 ◽

2005 ◽

Vol 2 (5) ◽

Author(s):

Frank Elston

Keyword(s):

Corporate Finance ◽

Net Present Value ◽

Capital Budgeting ◽

State Theory ◽

Rate Of Return ◽

Internal Rate Of Return ◽

Present Value ◽

Internal Rate

Corporate finance textbooks state conflicting criteria for capital budgeting projects. There are three main versions of the criteria, which contradict one another. Some texts advocate accepting all projects with a positive or zero net present value (equivalently, all projects with internal rate of return exceeding or equaling the required rate of return). Other texts call for accepting only positive NPV projects and rejecting those with zero NPVs. Still other texts advocate indifference when NPV is zero. The texts then are inconsistent with one another in a matter of straightforward theory. Moreover, a number of textbooks are internally inconsistent, stating rules for the case of NPV equals zero that are at odds with their stated rule for the IRR criterion. In practical finance, the implications of this theoretical difference will be very limited. For pedagogy, however, the failure to state theory correctly and clearly can have a greater impact upon learning.

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Evaluation of Investment Projects: A Case from Turkish Cement Sector

International Conference on Eurasian Economies 2016 ◽

10.36880/c07.01587 ◽

2016 ◽

Author(s):

Miyase Karabulut ◽

Sıtkı Sönmezer ◽

Vedat Zeki Yenen ◽

Zeynep Emir

Keyword(s):

Qualitative Research ◽

Net Present Value ◽

Capital Budgeting ◽

Rate Of Return ◽

Internal Rate Of Return ◽

Present Value ◽

Investment Projects ◽

Preliminary Results ◽

Internal Rate ◽

Exclusive Or

Capital budgeting is crucial for firms that have projects to evaluate especially when the projects are mutually exclusive or financing is scarce. The aim of the study is to determining the most widely used methodologies in capital budgeting decisions and their effectiveness. A qualitative research will provide cement sector specific examples in assessing industry projects and compares the methods of Net Present Value, İnternal rate of Return, Pay-back period, discounted pay-back period and MIRR. Each method is briefly discussed and its drawbacks and advantages are mentioned in detail. Other sectors are also examined in terms of capital budgeting. Our preliminary results indicate that net present value method dominates capital budgeting decisions in the sectors under study.

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Reinvestment Bias When Analyzing Mutually Exclusive Assets

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v2i3.6572 ◽

2011 ◽

Vol 2 (3) ◽

pp. 71

Author(s):

Robert J. Sweeney

Keyword(s):

Net Present Value ◽

Capital Budgeting ◽

Cash Flows ◽

Rate Of Return ◽

Internal Rate Of Return ◽

Present Value ◽

Internal Rate ◽

Current Period ◽

The Cost ◽

Flows Over Time

Capital budgeting decisions generally involve the commitment of resources in the current period to secure positive cash flows over time that generate a rate of return in excess of the cost of the funds invested. The most common techniques used to perform this analysis are the Net Present Value (NPV) and the Internal Rate of Return (IRR).Conceptually, these two techniques are substitutable; i.e. the resulting decision from a NPV analysis is identical to the decision from an IRR analysis. In practice, however, the NPV and the IRR can, on occasion, produce conflicting decisions. Specifically, when analyzing mutually exclusive assets the Net Present Value can support one asset while the Internal Rate of Return supports the other. The purpose of this paper is twofold; first, to highlight structural deficiencies in the conventional application of the NPV and the IRR, and second, to demonstrate a procedure to correct for these structural errors.

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Risk Manage Capital Investment Decisions: A Lease vs. Purchase Illustration

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v25i3.1031 ◽

2011 ◽

Vol 25 (3) ◽

Author(s):

Thomas L. Zeller ◽

Brian B. Stanko

Keyword(s):

Capital Investment ◽

Net Present Value ◽

Investment Decisions ◽

Capital Budgeting ◽

Rate Of Return ◽

Internal Rate Of Return ◽

Wealth Creation ◽

Font Size ◽

Present Value ◽

Internal Rate

This paper demonstrates how to build risk into capital investment decisions.  We illustrate how to combine distribution theory, technology, and a business professional’s skills and insight into a capital investment analysis.  In addition, we show how management can approximate the risk of each cash flow estimate and display the overall capital investment results.  This framework is extended by showing how a mutually exclusive decision can be improved, using a lease versus purchase example.<a style="mso-footnote-id: ftn1;" name="_ftnref1" href="http://journals.cluteonline.com/index.php/JABR/author/saveSubmit/#_ftn1">[1]</a>  An Excel template is readily available from the authors allowing a hands-on application of the framework presented in this paper.  In addition, this paper positions the reader to comfortably use more advanced analytics, such as Monte Carlo simulation, a tool that is readily available in commercial software applications.<div style="mso-element: footnote-list;"> <hr size="1" /><div id="ftn1" style="mso-element: footnote;">This paper focuses on the application of net present value.  The advantage of using net present value in a capital budgeting decision is that it shows the potential stakeholder wealth creation and wealth destruction.  An internal rate of return analysis is intentionally left out of this paper.  According to Brealey, Myers and Allen, Principles of Corporate Finance, New York, NY: McGraw-Hill/Irwin 2006, pp. 91-99, internal rate of return should not be used to evaluate mutually exclusive capital investments.  </div></div>

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Analisis Kelayakan Pengembangan Usaha Pasta Kangen Jupiter dan Mogot Jakarta Barat dengan Menggunakan Metode Capital Budgeting Tahun 2019-2023

Reviu Akuntansi, Manajemen, dan Bisnis ◽

10.35912/rambis.v1i1.401 ◽

2021 ◽

Vol 1 (1) ◽

pp. 9-14

Author(s):

Ni Puthu Eka Wardani Haliasih ◽

◽

Pambuko Naryoto ◽

Keyword(s):

Research Methodology ◽

Net Present Value ◽

Average Rate ◽

Capital Budgeting ◽

Payback Period ◽

Rate Of Return ◽

Internal Rate Of Return ◽

Present Value ◽

Internal Rate

Abstract Purpose: This study aimed to determine the feasibility of establishing the Pasta Kangen Jupiter dan Mogot Jakarta Barat in West Jakarta. Research methodology: The assessment is reviewed with Capital Budgeting in Optimistic, Moderate, and Pessimistic versions. Several methods include Payback Period, Net Present Value, Profitability Index, Average Rate of Return, Internal Rate of Return, dan Discounted Payback Period. Results: Based on the results of calculations using the Optimistic and Moderate Version of Capital Budgeting method, Pasta Kangen Jupiter Daan Mogot Jakarta Barat business in West Jakarta is feasible to run, while the Pessimistic Version is not feasible to run.

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Analisa Kelayakan Capital Budgeting Jaringan Backbone Kabel Serat Optik Palapa Ring Studi Kasus : Palapa Ring Barat

Jurnal Telekomunikasi dan Komputer ◽

10.22441/incomtech.v9i2.6472 ◽

2019 ◽

Vol 9 (2) ◽

pp. 87

Author(s):

Nurwan Reza Fachrurrozi

Keyword(s):

Net Present Value ◽

Capital Budgeting ◽

Payback Period ◽

Rate Of Return ◽

Internal Rate Of Return ◽

Present Value ◽

Internal Rate

Dalam rangka masyarakat Indonesia yang modern dan berbasis informasi, pemerintah bekerjasama dengan beberapa perusahaan telekomunikasi swasta menggelar mega-proyek pembangunan jaringan infrastruktur telekomunikasi berupa jaringan backbone kabel serat optik berkecepatan tinggi yang dinamakan Palapa Ring. Tujuan Palapa Ring antara lain untuk mengurangi kesenjangan digital antara Indonesia Bagian Barat & Indonesia Bagian Timur serta menyediakan akses telekomunikasi bagi masyarakat dengan tujuan pemerataan akses informasi untuk meningkatkan kesejahteraan dan mengurangi kemiskinan. Dalam perancangan jaringan ekstensi, parameter diatas ditambah lagi dengan proyeksi kapasitas jaringan yang dibutuhkan untuk beberapa tahun kedepan. Landing Stations ini terdiri dari 12 Kota Pantai beserta analisa penempatannya yang tidak semuanya sama dengan rekomendasi KMI. Untuk proyeksi kebutuhan kapasitas, didapatkan angka kebutuhan kapasitas untuk masing-masing Landing Stations sampai tahun 2033. Penelitian ini bertujuan untuk menganalisa kelayakan dari rencana investasi yang akan dilaksanakan PT. XXX. Rencana investasi ini berupa pembangunan proyek Palapa Ring Barat dengan total investasi sebesar Rp. 1,000,000,000,000 dengan tingkat bunga sebesar 18% & 30%. Dengan alat analisis Payback Period, Discounted Payback Period, Net Present Value, dan Internal Rate Of Return. Tiga alat analisis tersebut dipakai juga oleh PT. XXX untuk mengukur layak atau tidaknya proyek tersebut. Dari hasil analisis dan rencana proyek Palapa Ring Barat diperoleh Payback Period (PP) 3 tahun 1 bulan dan Discounted Payback Period 4 tahun 5 bulan dari target PT. XXX yaitu 15 tahun, Net Present Value (NPV) Rp. 1,392,644,795,000 dari target yang di tentukan PT. XXX yang hasilnya positif, Internal Rate Of Return (IRR) 35 % dari 18 % & 30 % yang di targetkan oleh PT. XXX. Dan juga didapatkan hasil Subsidi KPBU dari pemerintah Rp. 1,490,772,000,000 dengan rincian simulasi pembayaran selama 15 Tahun dengan Interest 0 % sebesar Rp. 99,384,800,000 / Tahun.

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Capital Budgeting Analysis to Assess the Karaoke Business Feasibility

PINISI Discretion Review ◽

10.26858/pdr.v3i1.13271 ◽

2019 ◽

Vol 3 (1) ◽

pp. 47

Author(s):

Panji Galih Kusumo Adie

Keyword(s):

Net Present Value ◽

Capital Budgeting ◽

Payback Period ◽

Feasibility Analysis ◽

Rate Of Return ◽

Internal Rate Of Return ◽

Present Value ◽

Initial Capital ◽

A Value ◽

The People

One form of entertainment that is currently being developed and in demand by the people of Jakarta and its surroundings is karaoke. This study aims to determine the results of the investment assessment of Karaoke Taxi using Capital Budgeting techniques in knowing the level of investment feasibility. The results of calculations with the Net Present Value method value of Rp. 92,061,946,333 with an initial capital of Rp. 80,000,000,000. While based on the feasibility analysis using the Profitability Index, the Karaoke Taxi business project got a value of 2.15, this result exceeds the number 1. Based on the feasibility analysis using the Internal Rate of Return a value of 40.18 percent was obtained. For the feasibility analysis using the Discounted Payback Period, the result of the Karaoke Taxi business project will return in the year 3,872, the return of investment is faster than required by the company (4 years).

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ANALISIS CAPITAL BUDGETING TERHADAP KELAYAKAN INVESTASI AKTIVA TETAP PADA PT. KHARISMA ARTA ABADI GUNA LUWUK KABUPATEN BANGGAI

Jurnal Ilmiah Manajemen E M O R ◽

10.32529/emor.v2i1.190 ◽

2019 ◽

Vol 2 (1) ◽

pp. 70

Author(s):

Irwan Moridu ◽

Sitti Damayanti Adista

Keyword(s):

Net Present Value ◽

Average Rate ◽

Capital Budgeting ◽

Payback Period ◽

Rate Of Return ◽

Internal Rate Of Return ◽

Present Value ◽

Internal Rate

Tujuan yang ingin dicapai dengan diadakannya penelitian ini adalah untuk menganalisis kelayakan rencana investasi asset tetap yang berupa penggantian mesin baru pada PT. Kharisma abadi arta guna luwuk. Adapun teknik yang digunakan dalam penelitian ini adalah deskriptif sedangkan pendekatan yang digunakan adalan kuantitatif, analisis data menggunakan laporan arus kas untuk menghitung Payback Period,Average Rate Of Return,Net Present Value, Profitability index,Internal Rate Of Return. Dari hasil analisis data diperoleh hasil bahwa untuk PP 1 tahun 9 bulan sehingga proyek di terima, untuk ARR dieroleh nilai 51,84%>25% maka proyek investasi diterima,untuk NPV diperoleh nilai positif Rp. 3.825.223.229 maka proyek diterima, dan untuk PI diperoleh nilai 3,5>1 maka investasi layak dilaksanakan. Dari penelitian yang telah dilakukan untuk mengantisipasi kerugian-kerugian yang tidak diharapkan oleh pihak PT. Kharisma Abadi Arta Guna harus melakukan analisis kelayakan investasi sebelum melakukan investasi , agar dapat mengurangi resiko yang terjadi.

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PERENCANAAN PENGHEMATAN ENERGI DENGAN SISTEM KOGENERASI / COMBINE HEAT AND POWER (CHP) CAPSTONE MICROTURBINE C-30 DI PT DUA KELINCI

Simetris Jurnal Teknik Mesin Elektro dan Ilmu Komputer ◽

10.24176/simet.v7i2.760 ◽

2016 ◽

Vol 7 (2) ◽

pp. 495

Author(s):

Imam Abdul Rozaq ◽

Noor Yulita Dwi Setyaningsih

Keyword(s):

Net Present Value ◽

Capital Budgeting ◽

Rate Of Return ◽

Internal Rate Of Return ◽

Present Value ◽

Internal Rate ◽

C 30

PT Dua Kelinci adalah salah satu industri makanan yang terbesar di Pati yang memiliki daya listrik sebesar 4950 kVA. PT Dua Kelinci perlu melakukan penghematan energi, salah satunya dengan kogenerasi (penggabungan antara listrik dan panas). Penelitian ini dimulai dari pengambilan data berupa kebutuhan listrik dan panas pada proses pembuatan kacang telur menggunakan teknologi kogenerasi Capstone Microturbine C-30 di PT Dua Kelinci. Metode penelitian yang digunakan meliputi analisis teknis dan analisis lingkungan Dari hasil analisis dihasilkan bahwa asumsi pada kondisi awal harus membayar biaya listrik dan panas sebesar Rp 959.784.664,00 sedangkan dengan menggunakan kogenerasi hanya membayar Rp 774.499.669,00 pertahun. Jadi penghematan total sebesar Rp 185.284.995,00 per tahun. Kelebihan penjualan listrik sebesar 103.680 kW (Rp 101.088.000,00), kelebihan penjualan panas sebesar 4,075 TJ/tahun (Rp 255.085.220,00), dan perdagangan emisi gas rumah kaca sebesar 130,88 tonCO2 (Rp 10.470.800,00) yang dapat diasumsikan seperti menanam pohon sebanyak 29 hektar pepohonan. Setelah dilakukan perhitungan Analisis Capital Budgeting diperoleh NPV (Net Present Value) sebesar Rp 107.058.448,00 dan IRR (Internal Rate of Return) sebesar 12,75 % serta PBP (Pay Back Periode) 5,18 tahun sehingga proyek penerapan sistem kogenerasi dengan menggunakan Capstone Microturbine C-30 layak diterima karena nilai NPV lebih besar dari nol dan nilai IRR lebih besar dari tingkat suku bunga bank serta PBP yang dihasilkan sebesar 5,18 tahun. Kata kunci: energi, kogenerasi, capstone microturbine.

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Aplikasi Capital Budgeting dalam Penentuan Keputusan Investasi Kamar dan Ballroom Di Hotel Panorama Lembang

Jurnal Kepariwisataan: Destinasi, Hospitalitas dan Perjalanan ◽

10.34013/jk.v2i1.17 ◽

2018 ◽

Vol 2 (1) ◽

pp. 10-20

Author(s):

Wishnu Wardhana

Keyword(s):

Time Series ◽

Positive Result ◽

Net Present Value ◽

Capital Budgeting ◽

Payback Period ◽

Rate Of Return ◽

Internal Rate Of Return ◽

Present Value ◽

Internal Rate ◽

Forecasting Methods

This research's title is "Applications of Capital Budgeting Method in Feasibility Study of Rooms and Ballroom Investment at Hotel Panorama Lembang", the purpose of this research are to know the feasibility of hotel investment based on financial projection aspect which using Capital Budgeting Method at Hotel Panorama Lembang. The feasibility of investment evaluate by the tools of capital budgeting model, which is have aspect of Discounted Payback Period, Net Present Value, Internal Rate Of Return, and Profitability Index in Hotel Panorama Lembang. The results of this research from the financial projection evaluated with the tools of capital budgeting evaluation which have the results can be seen that investment is feasible, as calculated by the method of discounted payback period is 8 years and 2 months based on hotel evaluation and 6 years and 11 months based on writer's evaluation, net present value in positive result (NPV > 0) in the amount of Rp. 1.743.693.325 , Internal Rate of Return is higher than the discounted factor of 12% in the amount of 23.9303%, profitability index is in positive result higher than 1. Based upon this calculation summarised that the feasibilty of investment based on financial projection are accepted. Based on the evaluation from the capital budgeting method, the criteria of investment at Hotel Panorama Lembang are accepted. The management used the methods which doesn't improve a good result in feasibility. Methods that used by the author more improve a good result in investing decisions, because using a selection of forecasting methods for future revenues. The author used a time series forecasting methods to improve more revenues for hotel. This forecasting method can provide the closest forecast result and the highest rate of accuracy. The author recommends to the management of Panorama Hotel Lembang to continue and accepted the investment of new rooms and ballroom. Considering the result of a feasebility study with a capital budgeting methods are accepted. The author also recommends to the management of Panorama Hotel Lembang to use a proper forecasting methods, such as time series methods.

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