FINANCIAL FEASIBILITY STUDY OF PT XYZ NEW PRODUCTION MACHINE INVESTMENT

• Main Author: Aulia Hanggoro, Amanda
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/49796
• Institution: Institut Teknologi Bandung

Indonesia is currently one of the fastest-growing cosmetics markets in Asia driven by two key trends of natural ingredients and product certifications to ensure product safety as well as quality. PT XYZ is an organic personal care micro, small, and medium enterprise (MSME) that produces their own line of handmade soap products. Although PT XYZ products use natural ingredients, they have not been registered yet for cosmetic products registration from Badan Pengawas Obat dan Makanan Republik Indonesia (BPOM-RI) and halal certification from Majelis Ulama Indonesia (MUI). To be able to qualify for the required certifications and tap into their market potential of healthconscious customers, PT XYZ must use more industrial means to produce their natural organic soap bars. The owners plan to invest in a new set of production machine that costs Rp15,814,800, fully funded using equity. Since the number is not small for a newly established MSME, the owners are interested in understanding whether the investment is financially feasible before proceeding with the investment. Therefore, the research is aimed to help PT XYZ determine the financial feasibility of the project. The data went through a six-stage process of analysis started with the development of pro forma financial statements with and without the new investment project. After that, the incremental free cash flow to the firm (FCFF) between two conditions is calculated and analyzed using payback period (PP), discounted payback period (DPP), net present value (NPV), and internal rate of return (IRR). Based on this analysis, the project is considered feasible since the result surpassed all the acceptance criteria with PP and DPP of 6.34 years and 8.33 years respectively, NPV of Rp66,753,317, and IRR of 19.40% (with company’s cost of capital of 12.59%). To strengthen the result, a sensitivity analysis and Monte Carlo simulation is performed which shows that the investment project has 6 sensitive variables and 73.90% chance of success. These findings indicate that the investment is feasible but still has risks of failure, thus, the related variables must be maintained at a stable rate.