COMPARATIVE ANALYSIS OF DISCOUNTED CASH FLOW METHOD WITH REAL OPTIONS METHOD USING BINOMIAL LATTICE AND RAINBOW OPTION APPROACHES IN ECONOMIC EVALUATION OF LATERITE BAUXITE MINING PROJECT IN PT. ABC

• Main Author: Alam Vandana, Rasul
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/61125
• Institution: Institut Teknologi Bandung

The mining industry has different characteristics than other industries. Therefore, it is necessary to conduct an economic evaluation of the project in analyzing the investment to determine whether the project is feasible or not. To analyze this, it is carried out using the methods called Discounted Cash Flow and Real Options. Discounted Cash Flow is a method that is easy to apply but ignore the risk that is uncertainty factors of a project in the market. To overcome this, it is carried out using the method called Real Options. Real Options method that used are Binomial Lattice and Rainbow Option approach. From those methods, a comparative analysis of the results obtained can be carried out. In Discounted Cash Flow method, WACC value is obtained which will be used as a discount rate and investment analysis parameter, namely NPV-DCF and IRR. From the calculation, discount rate are 12,52% for first scheme and 10,74% for second scheme, NPVDCF are Rp 84.669.205.810 for first scheme and Rp 107.736.223.656 for second scheme, and IRR are 22,7% for first scheme and 24,92% for second scheme. Based on project criteria, because NPV-DCF is greater than 0 (zero) and IRR is greater than discount rate, the project is economically feasible. Moreover, a deterministic sensitivity analysis was made to changes in NPV-DCF value using four parameters, namely selling price, discount rate, capital cost, and operating cost with rates change are ±10%, ±20% and ±30% for both schemes. In Real Options methods uses 2 (two) approach are Binomial Lattice and Rainbow Option. By using Binomial Lattice approach, NPV-RO with option (option value) that obtained are Rp 156.835.743.472 for first scheme and Rp 167.022.123.672 for second scheme, NPV-RO without option are Rp 149.185.249.483 for first scheme and Rp 163.145.123.211 for second scheme. Moreover, in NPV-RO with option (option value), option premium that obtained are Rp 72.166.537.662 for first scheme and Rp 59.285.900.016 for second scheme. Furthermore, in NPV-RO without option, option premium that obtained are Rp 64.516.043.673 for first scheme and Rp 55.408.899.554 for second scheme. In addition, there is a project delay of 1 (one) year for both schemes. Besides, by using Rainbow Option approach, NPV-RO with option (option value) that obtained are Rp 158.265.032.281 for first scheme and Rp 169.972.383.133 for second scheme, NPV-RO without option are Rp 150.098.560.299 for first scheme and Rp 164.314.530.289 for second scheme. Furthermore, in NPV-RO with option (option value), option premium that obtained are Rp 73.595.826.471 for first scheme and Rp 62.236.159.476 for second scheme. Moreover, in NPV-RO without option, option premium that obtained are Rp 65.429.354.489 for first scheme and Rp 56.578.306.632 for second scheme. In addition, there is a project delay of 1 (one) year for both schemes.