THE FINANCIAL FEASIBILITY OF MODERNIZING PRODUCTION MACHINERY

Abstract

The performance of a machine affects production capacity, which is an important part of a supply chain network.  This research concerns a fishmeal manufacturer, SJ Company, which has limited resources and capacity.  It is faced with machine obsolescence problem: its old machines cause delays in the whole production process.  Therefore, a new machine investment project is considered.

There are two scenarios for machine investments for this firm.  Scenario 1 is Machine A with a capacity of 34-40 tons per day, which is appropriate for this firm’s capacity and has the same capacity as the existing machine.  Scenario 2 is Machine B with a capacity of 55-60 tons per day, which is bigger, and performs perfectly with big lots of raw materials.

Financial analysis methodology is applied, to compare each scenario with the other and with the existing machine.  The research analyzes the feasibility of purchasing a new machine with regard to financial conditions and the value of changing machines.  The results indicate that Machine B is better than the existing one over a long term period.  It can make more incremental profit each year with the possibility of even more after completion of the monthly payments period.