30 Chapter 4. Results and Discussion 4.1 Research Results: Financial Feasibility Studies 4.1.1 Weighted Average Cost of Capital as the Discount Rate PT PASTI BERHASIL is a private company with debt is zero, WACC = Cost of Equity + Cost of Debt x (1-Tc) and so Cost of Equity uses the CAPM Formula. Table 4. 1 Present CAPM Source: writer’s own work In the result cost of equity is 7.22% and so the WACC with cost of debt is zero, WACC is 7.22%. 4.1.2 Net Present Value (NPV) Table 4.2 presents financial data starting from year zero (Y0) to year five (Y5) in an effort to calculate Net Present Value (NPV). This method is a measure of capital budgeting decisions, the present value of which is described as the after-tax free cash flow after initial project expenditures. 31 Table 4. 2 Net Present Value Source: writer’s own work Assumption of this NPV: 1. Projection based on forecast from the internal stakeholder of PT PASTI BERHASIL with combined supporting justification by macro external analysis (PESTLE) and external industrial analysis (Porter’s Five Forces Analysis, CPM Analysis). 2. PT PASTI BERHASIL is an internet service provider that was established in 2016, so they already have a track record, good will, company branding, and historical performance. 3. One of the reasons of this development is to fulfil the opportunity of PT PASTI BERHASIL on new coverage area that PT PASTI BERHASIL already has customer leads. 4. The investment capex of Y0 development need 9 months, so in Y0 its still have 3 months to do the sales and get the revenue. 5. Total additional capital is Rp 60,000,000,000, it will separate into 2 investments, which are capital investment and working capital investment. 6. The entire capital investment Rp 55,317,451,667 will be used to deploy new Fiber optic infrastructure along 500 KM on Region A – West Java, consisting of material : a. 500 KM Cable and HDPE b. 10.000 Pole Infrastructure 7. Investment of working capital is Rp 4,136,650,329 will be used to cover the operating expense in beginning period. 8. Sales mix, market penetration rate, and churn rate projection of PT PASTI BERHASIL after the development done, a. Customer’s projection 32 Source : writer’s own work b. ARPU (Average Revenue Per User) Projection per Month in Y0 until Y5 Source : writer’s own work Notes : ARPU existing PT PASTI BERHASIL 2023 before this projection is Rp 1,300,000 ARPU having downturn because the target market of the company are business to business, business to government, and business to consumer. With the ambitious number of customers, the company will focus on the consumer segment that give a low revenue but have a big number and by the time number of consumer segment will going bigger and it will decrease the ARPU. c. Revenue Projection (Total Customer per month x ARPU per month compound in a year) Source : writer’s own work 33 9. Cost of sales and cash operating expense of this NPV Projection based on forecast from the internal stakeholder of PT PASTI BERHASIL with historical performance of PT PASTI BERHASIL ratio, and having downturn ratio between revenue and cost of sales also for cash operating expense, when quantity of customer increasing. More over customer increase more bigger ratio between revenue and cost of sales also for cash operating expense. Table 4.2 shows the NPV value of PT PASTI BERHASIL is Rp 13,398,272,600. This means that in terms of the NPV indicator is feasible. 4.1.3 Internal rate of return (IRR) Internal rate of return (IRR) is a method that can be used by companies to analyse the economic performance of a company. The IRR method is a method commonly used to display economic rates of return. The IRR value must be higher than the WACC value, or IRR ≥ WACC. The IRR of PT PASTI BERHASIL from 0 years to the fifth year is presented in Table 4.3. Table 4. 3 IRR Value at PT PASTI BERHASIL in the First Five Years Source: writer’s own work Table 4.3 shows the IRR value of PT PASTI BERHASIL from 0 years to the fifth year is 13.25%. Mean IRR (13.25%) ≥ WACC (7.22%). This means that in terms of the IRR indicator is feasible. 4.1.4 Discounted Payback period (DPP) The Discounted Payback period (DPP) on the PT PASTI BERHASIL fiber optic infrastructure project is presented in table 4.4. Table 4. 4 Discounted Payback Period (DPP) Source: writer’s own work 34 The company's financial projections is a maximum of five years, whereas based on DPP calculations it is 4.48 years. This shows that this project is feasible when viewed from the DPP. Meanwhile, Table 4.5 does not take into account the time value of money (i=0%), so it is called the payback period. Table 4. 5 Payback Period (PP) Source: writer’s own work Table 4.5 shows that the payback period (without taking into account time money of value) for investment by PT PASTI BERHASIL is 3.91 years. Thus, the payback period (3.91 years) is faster than the discounted payback period (DPP). When compared between the Discounted Payback Period (DPP) as presented in table 4.8 with the Payback period (PP), it shows that DPP is longer in value (4.48 years) compared to PP (3.91 years). This shows that the DPP approach is more conservative than the PP approach. 4.1.5 Profitability index (PI) Profitability Index (PI) is the present value of cash flow compared to the investment value. If the PI calculation result is greater than 1 (P > 1) or PI is equal to 1 (PI = 1), then the investment is worth carrying out. Meanwhile, if PI is smaller than 1 (P < 1), then the project is rejected, because it is not feasible to run (Agustin, 2021). Table 4. 6 Profitability Index Year Profitability Index 1-5 1,22 Source: writer’s own work Table 4.6 shows that the PI value is 1.22. This means the PI value is greater than the number 1 (one). This means that the ISP project calculated using PI is feasible. 35 4.1.6 Summary of Financial Feasibility Study Table 4.7 The summary of financial feasibility study shows that all financial indicator has conclude the project is financially feasible. Table 4. 7 Summary of Financial Feasibility Study Financial Indicators Results Conclusion Net Present Value (NPV) NPV= Rp13,398,272,600 meaning NPV > 0 or NPV is positive Feasible Internal rate of return (IRR) IRR (13.25%) > WACC (7.22%) Feasible Discounted payback period (DPP) Discounted payback period (DPP) is 4.48 years < 5 Feasible Profitability Index (PI) PI is 1.22. It means PI > 1 Feasible Source: writer’s own work 4.1.7 Scenario analysis On this scenario analysis, the forecast will using aggressive approach from sales forecast with the rest assumption is same. Because its aggressive approach then it will increase the risk of this project and it increase the value of WACC. The WACC is 7.22% as the basic of WACC from the formula that has been calculated before, and we add 5% to as trade of the risk. So the WACC become 12.22%. The assumption that changed are : 1. Customer Projection Source: writer’s own work Aggressive approach means the sales of customer forecast increase significantly but still based on under total market size that available on the region A. 36 2. ARPU Projection Source: writer’s own work ARPU having downturn following the sales mix of customers, the company will focus on the consumer segment that give a low revenue but have a big number and by the time number of consumer segment will going bigger and it will decrease the ARPU. 3. Revenue Projection Source: writer’s own work The result of this scenario analysis are : 1. NPV Table 4. 8 Net Present Value with Aggressive Approach Source: writer’s own work Table 4.8 shows the NPV value with aggressive approach of PT PASTI BERHASIL is Rp 33,700,137,652. This means that in terms of the NPV indicator is feasible. 37 2. IRR Table 4. 9 IRR Value with Aggressive Approach Source: writer’s own work Table 4.9 shows the IRR value with aggressive approach of PT PASTI BERHASIL from 0 years to the fifth year is 26.27%. Mean IRR (26.27%) ≥ WACC (12.22%). This means that in terms of the IRR indicator is feasible. 3. DPP Table 4. 10 Discounted Payback Period (DPP) with aggressive approach Source: writer’s own work The company's financial projections is a maximum of five years, whereas based on DPP calculations it is 4.00 years. 4. PI Table 4. 11 Profitability Index Year Profitability Index 1-5 1,56 Source: writer’s own work Table 4.11 shows that the PI value is 1.56. This means the PI value is greater than the number 1 (one). This means that the ISP project calculated using PI is feasible. 38 The summary of financial feasibility study with aggressive approach shows that all financial indicator has conclude the project is also financially feasible. Table 4. 12 Summary of Financial Feasibility Study with Aggressive Approach Financial Indicators Results Conclusion Net Present Value (NPV) NPV= Rp 33,700,137,652 meaning NPV > 0 or NPV is positive Feasible Internal rate of return (IRR) IRR (26.27%) > WACC (12.22%) Feasible Discounted payback period (DPP) Discounted payback period (DPP) is 4.00 years < 5 Feasible Profitability Index (PI) PI is 1.56. It means PI > 1 Feasible Source: writer’s own work 4.2 Discussion PT PASTI BERHASIL's work is in the field of telecommunication services, with a focus on digital transformation. The company wants to provide benefits to the community by providing services in the form of digital transformation. PT PASTI BERHASIL's mission consists of 4 items. focus on solution. The company's mindset and employees is how to provide solutions in internet service for digital transformation needs. Second, customer first. When the company wants to take policies or steps, the main consideration is the interests of customers. Third, striving for excellence, which means that all employees of PT PASTI BERHASIL are always give the excellence services. Fourth, building people. Where PT PASTI BERHASIL believe success company is in their people.