MBA

YP53 & YP54

I TB School of Business and Management

Young Proffesional Lead the Future

MM602
Investment Project Analysis

Final Exam

Student Name: Nadya Rizkita Putri A

Student ID: 29115630

1st Semester 2016/2017

MASTER OF BUSINESS ADMINISTRATION

School of Business & Management

INSTITUTE TEKNOLOGI BANDUNG

EXECUTIVE SUMMARY
I.

Objective
WANDITEX is dealing with some problem as their pending purchase had been
put in indefinite hold, causing the CEO to ordered a moratorium on their capital
expenditure that might affect their financing negatively. The COO stated they need the
automation system to cut their production cost and also to accelerate the companys
production. On the other hand, as the companys CFO, I have to avoid any unplanned
expenditures, including asset purchasing and reduction of liability, which means I need
to address the COO needs without endangered the companys financing.
Tongli is a mechanical and electronic firm in which WANDITEX having
business with. Their agreement with WANDITEX is affected with the companys
financial issue above. They need to win over their opponent, Shima Seiki and Marui
Textile Machinery, that also targeting WANDITEX for their automation system.
The deal with WANDITEX will affect Tonglis sales target of the year. Thus,
Tongli have the urgency to win the deal. To attained their objectives, Tongli offers
several transaction options to accommodate their client like WANDITEX, their options
are; (1) Purchase with cash or borrowed fund or (2) lease.
As the CFO of WANDITEX, I need to make leasing model to compute the NPV
and IRR to get a better understanding of which alternative from the 3 companies offering
is best for my company based on our financing situation.

II. Analysis
a.

Capital Leasing or Operating Leasing

To compute the NPV and IRR, first we have to determine whether the leasing
is capital leasing or operating leasing. Based on the leasing options given, none of it
meets the criteria of PSAK. Thus, we can conclude that what we have here is
operating lease. Knowing the leasing category will affect the NPV and IRR
calculation for the lease options.
To calculate the NPV and IRR, first I need to determine the interest rate as
the discount rate. From the given data, we have Bank lending rate, which is 10%12.5%. I use both as the comparative rate to get a better leasing model. The rate
needs to be multiplied with the tax rate (25%, from current corporate tax rate in
Indonesia) before it can be obtained in to the calculation. So the discount rate we use
are 7.5%, 9.38%, 10%, and 12.5%.
Tongli give several leasing options for WANDITEX, which are:
-

Option #1: no maintenance & no spare part replacement, annual payment

$140,000

Option #2: with maintenance but no spare part replacement, annual payment
$147,000

Option #3: with maintenance & spare part replacement but not include labor
cost, annual payment $154,000

Option #4: full service maintenance, annual payment $161,000

From the excel calculation of the leasing model above, comparing all the options and tax
scenario from Tongli, Shima Seiki, and Marui Textile Machinery we can conclude that
Tongli leasing Option#1 scenario B have the lowest NPV and lowest IRR. In which they
offered NPV of IDR5,109,596,890 with IRR of 7.29% and they have IDR1,740,925,112
advantage over borrowing/loan options. This is by far the most attractive options for
WANDITEX company.

b. New Proposed Investment

WANDITEX as a firm also valuate the possibility of future investment to
increase the firms value. There are 3 industries considerate by WANDITEX to
invest at, which are Property, Automation existing plan, and Marketable securities.
To estimate the options we need to calculate their NPV and using EAC due to the
existent of different life period among the businesses above.
The assumption for the discount rate in this calculation is from adding the
inflation rate, BI rate, and the bank interest rate.

After knowing the discount rate, we can calculate the NPV and EAC to
further evaluate and weighting the investment options.

From the calculation above, it shown that the automation existing plan has
the most promising value.

III. Conclusion and Recommendation

3.1 Conclusion
-

Based on the Leasing model computation, we can conclude that leasing options #2
scenario B from Tongli has the lowest NPV and IRR with biggest advantage over
loan. Making it the best options out of other scenarios from 3 companies.

Based on the New Proposed Investment, we can conclude that the current existing
automation plan has the most promising investment value with its NPV/EAC.

3.2 Recommendation :
Given that its best to invest on automation plan from its proposed investment
calculation, WANDITEX need to set their deal with Tongli with their leasing option #2
scenario B because its the most profitable for WANDITEX.