PRICE IDENTIFICATION AND FINANCIAL FEASIBILITY STUDY OF HYDROPONIC AGRICULTURE IOT SOLUTION LAUNCH PROJECT AT PT XYZ

• Main Author: Siti Maliska Irawan, Anjeli
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/77252
• Institution: Institut Teknologi Bandung

Since the emergence of Internet of Things (IoT) technology in 2015, its usage has rapidly increased worldwide, including in Indonesia. The number of Internet of Things users had passed 400 millions in 2022. Recognizing the potential, PT XYZ, an innovative Indonesian telecommunications company, aims to expand its business by launching an IoT solution tailored for hydroponic agriculture. The launch project requires an initial investment of around Rp 500 million. Given the amount, PT XYZ wants to determine the selling price using a value-based pricing strategy and assess the project's financial feasibility along with the associated risks prior to execution to prevent upcoming losses. This research will utilize both primary and secondary data obtained from interviews and research for the analysis. The analysis itself includes determining the customer's willingness to pay (WTP) by creating assumptions, calculating incremental cash flow, and present value of the benefit over 5 years. Subsequently, creating capital budgeting cash flow using assumptions and hypothetical selling price, pro forma financial statements, weighted average cost of capital (WACC), free cash flow to the firm (FCFF), and finally the terminal value. Then, the pricing of the IoT solution will be determined using capital budgeting techniques like net present value (NPV), profitability index, payback period, internal rate of return (IRR), and Excel's goal seek feature. The project's feasibility will be assessed by comparing the IoT price to the customer's willingness to pay and risk analysis using sensitivity analysis and a 10,000-time Monte Carlo simulation. Through this research, it was found that the present value of benefits or the customer’s willingness to pay for the IoT solution is Rp 90,708,238. Considering PT XYZ's targeted internal rate of return of 20%, the determined selling price of the IoT solution is Rp 20,120,408, which falls within the customer's willingness to pay. Thus, the launch project for the hydroponic agriculture IoT solution is considered feasible. Additionally, capital budgeting techniques show PT XYZ's launch project payback period is 4.08 years with a net present value of Rp 3,424,935,505 and a profitability index of 8.21 over 5 years. While the figures seem optimistic, it is important to conduct a risk analysis. Sensitivity analysis of the NPV reveals that product price, cost of goods sold, and salary expense are three sensitive drivers significantly impacting the NPV with changes. Recognizing these drivers, the project's risk is 12.69%, while the profitability remains high at 87.31%. The research concludes that PT XYZ's hydroponic agriculture IoT solution project is feasible, while still taking into account the potential risks and how to overcome it.