VALUATION OF CONTRACT DEMAND VOLUME OF NEW GENERATION PRODUCT (NGP) CAVITY FILTER CIGARETTE PROJECT USING INCOME APPROACH IN CIGARETTE FILTER COMPANY (PT CFC)

Abstract

PT CFC, a cigarette filter manufacturer, sells the latest patent product
capsule cavity sensation filter to MNC Korea's cigarette factory. MNC delivered latest
view forecast demand contract, of 356.75 million cigarette filters in totals, period
January 2023 to July 2024, which to be marketed in Asia and the Commonwealth of
Independent State (CIS) countries. Hence, to decide the feasibility of the project,
requires research and analysis whether the project is profitable or detrimental.
Objective of this research are to assist PT CFC in taking decision of those above
project, by using 2 approach methods, 1). Project Management, aiming to get an initial
outlay . 2). Financial Valuation through income approaches (Initial Outlay, cash flow,
terminal cash flow, working capital, PP, IRR and NPV). From the research study, the
Initial Outlay it cost GBP 1,552,410 which generating from project management
through LM (logic Model), WBS (work Breakdown Structure) and AP (Activity
Plan)). Annual cash flow will be minus at the 1
year of project started, by GBP 185K,

but in the 2^nd year positive of GBP 832K, overall project during contract
demand period will positive of GBP 647K and terminal cash flow at the end of the
project delivered GBP 1.471K. By using CAPM method PT CFC required return
18.01%, contribute from risk free return 3,509%, beta coefficient 1.27, and an
annualized return 15%. Capital structure, planned and decided to using 100% equity,
which resulting of WACC 18.01%. According to above data, financial valuation could
be define, the Payback Period achieved 1.2 years. Internal Rate of Return counted
350% higher compare to WACC 18.01%. Net present value positive of GBP 1.739K.
Hence refers to valuation parameter above concluded that, the project investment was
feasible and can be continued into project execution.