Cilolohan Edutown Townhouse Financial Feasibility Study using Discounted Cash Flow and Real Option Methods
Dwiki Harnawadi Ahmad
Institut Teknologi Bandung
In the city of Tasikmalaya, where the population is around 700 thousand people, with the annual growth rate of 1.4% and a backlog of housing around 6000 houses. Tasikmalaya has the capability and potential to have a real estate development. In 2019, there is a news of a highway project that is going to connect Bandung – Cileunyi – Tasikmalaya.
This research is aimed to assist PT. XYZ to make a feasibility study of the intended project by giving options of alternate numbers and types of unit constructed, and the timing of the project started. The feasibility study is going to be analyzing using DCF analysis, with the criteria of Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period (PBP). ,- Return of Equity (ROE) and Return of Investment (ROI) and the methods of Real Option of delaying the project as a method to be compared with. These criteria are used as the basis to help PT.XYZ in making the necessary decision. In addition, the research also suggests some strategy to manage risk and to choose the best decision.
The result is that among several options in the study, option 4 (delay) is the most suitable and profitable among other option. This option 4 (delay) composition type of unit is 34 small units and 17 big units, and expected to be built in the year 2019, thus delaying the project 3 years from now. Another recommendation is to fund the project by the help of a loan so that the WACC or discount rate for the project is reduced, thus giving the NPV of IDR 5.326.929.851,-, IRR of 97.8%, and PBP of 0.81 year (9 months 26 days). This result is also supported by the real option analysis using Black-Scholes formulation, in which the call value the option 4 give is 2.381.841.983 which have a higher call value than option 3 (delay).
Topic: Economic and Finance in Education