Should PT.Kabitama Chem Tex invest on foundry pig iron or HMS (High Mild Steel Scrap) in order to expand its metal business? Essay

The exclusive owner of PT.Kabitama Chem Tex, which is a foreign Investment Company, had expressed involvement in spread outing his metal concern. And so the purpose of this paper was to transport out a feasibleness survey analyzing two investing options forKabitama. Therefore, the research inquiry is, “Should PT.Kabitama Chem Tex invest onfoundry hog Fe or HMS ( High Mild Steel Scrap ) in order to spread out its metal concern?”

Through primary beginning ( Interviews ) and secondary beginnings ( papers, web sites, text editions ) the SWOT was drawn out followed by determination tree and investing assessment of the two metal merchandises.

The SWOT analyses of the company helped in deriving a clear apprehension of Kabitama’s aims of the undertaking, this was done by placing the internal and external factors. Major portion of this paper went into analyzing the quantitative decision-making techniques, as the decision is based on these consequences.

The decision and recommendation gives an appraisal of the two possible investing options for Kabitama and concludes that, on the bases of quantitative factors, HMS is a better merchandise to put on than Pig Iron. It besides suggests that the company should besides see the qualitative factors, in order to cut down the hazard factor.

Word Count–197

Introduction

PT.Kabitama Chem Tex is a foreign Investment Company with Mr Manish Parekh as the exclusive owner. Kabitama chemtex is a trading company that “deals in assorted types of chemicals, fabrics and metals, with many states like Indonesia, India, USA, South Africa, Dubai, Australia, China, and many more, depending on the merchandises, either to sell or purchase as per the handiness or demand of that merchandise in the several state. At present chemicals like dyes, dyes intermediates, plasticisers, agro merchandises, ethanediols, are running swimmingly. Where as in fabrics, the market is chiefly captured by China ; hence there is no large range to turn. Coming to metals, it’s a really promising area.” [ 1 ]

[ 2 ]

Right now Kabitama is providing 1-2 metal merchandises, but if market starts turning so demand of many other points will emerge. This needs to be carefully observed, set into marketing research section.

This study will transport out a feasibleness survey look intoing two investing options forKabitama. The first investing chance is on foundry hog Fe. “Foundry Pig Iron is used largely for doing gray Fe steel merchandise, malleable Fe steel merchandise used for motor trim parts and many industrial spare parts. These are used in replacing of bit HMS as it has better belongingss like fast runing ; house eyeglasses and gives unvarying results.” [ 3 ] The 2nd investing chance is on HMS ( High Mild Steel Scrap ) . “Scraps are used to bring forth steel merchandises every bit good as in metalworks excessively. Both the merchandises go manus in manus and so the monetary value plays a large role.” [ 4 ]

Therefore theresearch inquiryis-Should PT.Kabitama Chem Tex invest onfoundry hog Fe or HMS ( High Mild Steel Scrap ) in order to spread out its metal concern?

Methodology

A scope of beginnings was applied to look into Kabitama’s two alternate picks.

Primary research involves interviews with the proprietor of Kabitama, Mr Parekh and the comptroller, Mr Himawan. This was undertaken in order to place Kabitama’s future strategic and fiscal program. The interviews besides contributed to their cognition and apprehension of the company’s SWOT, every bit good as the venture hazards, and operating processs

Secondary research was carried out in order to roll up information and information related to the company every bit good as to larn more about investing assessment and determination tree. The information was collected from assorted beginnings such as fiscal paperss, text edition and web sites.

The focal point of this assignment is to compare the primary and secondary information to research and companies two alternate merchandise picks, and analyse them through investing assessment, determination tree and SWOT, in order to compose a suited solution.

Research and findings

Merchandise inside informations[ 5 ]

Dutch east indies is full of rich minerals but its natural stuffs are still merely exported. Not much natural stuff are converted to semi finish merchandise which can bring more money if there will be a support for foreign investor to put in Smelting works by which the natural stuff can be converted to semi finish merchandise and finally it will convey more net income to the company every bit good as the state.

Dutch east indies wants to get down edifice automotive and its trim parts fabrication. Till now all autos are assembled where by the “population of Indonesia is 250 million” [ 6 ] and still non self reliant even though all the ores and adult male power are available in the state. Therefore, the demand of metal is quiet immense in Indonesia as some of the merchandises they need to Import. In the last 2 old ages at that place is a displacement of concern in metals from Korea, Thailand, Taiwan and China towards Indonesia. A significant growing has been detected which can turn into multi merchandise demand and to capture any large market portion. Kabitama has to hold a good base to stand for and offer its related merchandises before rivals enters, which Kabitama already has. Now they need to make more competitory sourcing, tracking new purchasers and upgrade proficient facets of merchandises.

Decision Tree[ 7 ]

Investing Appraisal[ 9 ]

Investing assessment is a quantitative technique used to cipher the fiscal cost and benefits of an investing determination.

The payback period– Works out how long it takes to refund the initial investing

Net nowadays value– This takes into history the clip value of money. It is based on the rule that money is worth more than it is in the hereafter.

Investing Undertaking A:Foundry hog Fe[ 10 ]

Payback Period= 6 months=6 months and 6.8 yearss

2838274.907

Investing Undertaking B:HMS ( High Mild Steel Scrap )[ 12 ]

Payback Period= 4 months=4 months and 28.4 yearss

3127719.908

Analysis and treatment

SWOT analysis[ 14 ]

Kabitama has a really good market repute for maintaining committednesss in footings of bringing. This will work as an advantage, as the concern will easy acquire providers and purchasers, and hence have high client keeping. The proprietor has high cognition of the merchandises, which helps the concern to react to the market rapidly. As Kabitama is owned by a exclusive bargainer, there is no hierarchy, which insinuates speedy determination devising. At the same clip, the size of the company suggests limited human resources and limitless liability. Another failing of the concern is that, undertaking planning is nonexistent. This can make large jobs while doing a determination.

The car industry is turning in Indonesia ; hence there is a immense demand of metal merchandises. By taking this chance of addition in market demand, Kabitama can turn their metal concern and gain higher grosss.

As a trading company there should be a uninterrupted proctor of monetary value tendency every bit good as market demand. Buying and merchandising has to be in a fleet manner. Goods should non be lying in warehouse. If there is high supply of the merchandise, than there should be a high demand for the merchandise or visa-versa. If this doesn’t go on so there this ultimately causes cost, black finance and if there is a hapless demand so may do lost excessively. So the demand and supply of the merchandises are really of import in order to do the undertaking a success.

It is besides of import for the company to analyze the fluctuation of the exchange rates, authorities Torahs, payment footings, ECT. This is because market monetary value of the natural stuff depends on these factors. If any of these alterations, so it might move as an chance or a menace for the concern.

Decision tree analysis

A determination tree is a quantitative determination doing tool. A determination tree will assist the company to take between the two undertakings as it undertakings a balanced image of the hazards and wagess associated with each undertaking, by ciphering the expected values. This value refers to the mean result if the determination was made several times, in precisely same state of affairs. [ 15 ]

The net expected value for undertaking B ( $ 2743536.5 ) is more than double than the value for undertaking A ( $ 1292835.83 ) . This clearly states that undertaking B is the best option out of the two undertakings, and therefore the company should reject undertaking A. But before making so, it is of import for the company to should see extra fiscal and non-financial information. Even though a determination tree allows the company to analyse to the full the possible effects of a determination, it can besides be wrong. As a determination tree depends on the truth of the estimation informations. If the information is biased towards a peculiar result or is wrongly estimated, than automatically the consequences will be wrong. To avoid this job I have besides calculate the investing assessment of the two undertakings.

Investing assessment Analysis

The tabular array above gives an overview of the investing assessment I have calculated.

The payback period for undertaking B is shorter than undertaking A. This suggests that undertaking B will take less clip to gain adequate net incomes to refund the cost of the initial investings. Therefore undertaking B is more liquid, and less hazardous as it allows the company to reimburse the investing Oklahoman, so they can reinvest the money elsewhere. Furthermore, with a shorter payback period, there ‘s less of a opportunity that the economic system, exchange rates, market conditions, or other factors impacting this undertaking will drastically alter.

This method is the simplest manner of comparing investing undertakings in order to place which undertaking yields a speedy return for the concern. However, this method ignores the entire gross on the investing undertakings and the clip value of money. [ 16 ] To get the better of this job I have calculated the net present value of these two undertakings, as it considers the clip value of money.

The net present value method will assist the company happen the present value in today ‘s dollars of the chance cost of money and future netcash flow of the undertakings. NPV analysis is used to measure the undertaking ‘s hard currency flows, instead than the gross from the undertaking. This is because “NPV does non see depreciation as it is non an out-of-pocket expense” [ 17 ] .

In this instance the chance cost is the involvement rate which is 6 % . Both the undertakings are giving positive results ; this suggests that both the undertakings are profitable for the company. As Undertaking B has a greater difference between NPV and cost than undertaking A, it is advisable to take undertaking B.

Decision and Evaluation

In replying the inquiry “Should PT.Kabitama Chem Tex invest onfoundry hog Fe or HMS ( High Mild Steel Scrap ) in order to spread out its metal concern?”This paper clearly delineates the extent of its effectivity by analyzing the SWOT, investing assessment and determination tree of these two metal merchandises. This paper should assist Kabitama in make up one’s minding the best investing undertaking for spread outing their metal concern.

Overall, on the bases of the investing assessment and determination tree, it is advisable for Kabitama to take undertaking B ( HMS ) as it has higher net income, lower payback period, higher net present value and a really high cyberspace expected value so project A ( Pig Iron ) . But these are merely the quantitative determination doing techniques, in order to make up one’s mind the best option it is of import to besides see the qualitative side ( non-financial factors ) .

Which are [ 18 ] : –

• The purposes of the organisation- if Kabitama’s purpose is to gain maximal net income so it will concentrate on the consequences of investing assessment,
• Dependability of the informations
• Risk- this undertaking can be a hazard if the information is incorrect as the computations will be incorrect which may take to a incorrect determination. Kabitama may prefer to take a lower but more certain return.
• The Economy- Interest rates will hold a major impact. If involvement rates are increasing, any investing will be required to supply a greater net income. Future economic alterations, such as a recession or roar, must be considered in the anticipations of future costs and grosss.
• Image- Kabitama should see how this undertaking might impact its image and public dealingss
• Ethics- as Kabitama has a echt committedness to trading ethically ; the company should besides see this factor.

So to make up one’s mind which undertaking is the best, the company should research more on the qualitative factors of investing assessment technique and other non-financial factors. The company should besides include more metal merchandises in their research section, this will assist the company in taking the best metal merchandise to put and spread out their mental concern. It may besides be utile to follow other methods of investing assessment such as the Accounting Rate of Return, which is less sensitive to fluctuations in future hard currency influx. This manner, with more information, Kabitama will be able to see the advantages and disadvantages of each undertaking more clearly. This will ensue in cut downing the hazard factor and there will be a higher possibility for the investing to be a success.