PT Buah Super is a durian farm company located in the Central Java region. The company has
Question:
PT Buah Super is a durian farm company located in the Central Java region. The company has 5 hectares of farming area. Following is the durian selling price based on the quality
Durian quality Price per kg
Super Premium IDR 100.000
Premium IDR 70.000
Standard IDR 50.000
The durian price increases at the inflation rate. According to local government statistical data, the Central Java inflation rate is expected to be 7 percent per year. The company is planning to thin the farming today 1 January 2019, and it expects to realize a positive cash flow of Rp 1.000.000,- per hectare from thinning. The thinning process is performed to increase the quality of the durian farming area. They are doing 20-30 years following planting. PT Buah Super executives are considering when to harvest the durian. They have possible scenarios below:
Time to Harvest Harvest (kg) Durian quality
per 1.000 square meter Super Premium Premium Standard
1 January 2039 400 10% 40% 50%
1 January 2044 475 15% 45% 40%
1 January 2049 550 20% 50% 30%
There are 5 percent losses of each kg durian during the cleaning and packaging processes. The entire cost of harvesting is expected to be Rp 8.000,- per kg. Sales and administrative expenses (fully paid in cash) are expected to be Rp 6.000,- per kg. The company executives budget these costs to increase at the inflation rate. The company needs to maintain the durian farming area after harvesting. The maintenance costs are as follows:
Cost
Maintenance per 1.000 square meter
Razing IDR 1.000.000
Watering IDR 1.500.000
NPK Fertilizer IDR 500.000
Kompos Fertilizer IDR 300.000
All cash flows are assumed to occur during the harvest year. If PT Buah Super starts harvesting in 2039, the cash flows will be received in 2039, as well. The company's executives estimate that the nominal required return rate is 13 percent, and the tax rate of 30 percent.
Required:
When should PT Buah Super harvest the forest? Your analysis MUST include NPV calculations, as well as the necessary assumptions and brief explanation. Any UNCLEAR calculation will result in ZERO marks.
OM operations management
ISBN: 978-1285451374
5th edition
Authors: David Alan Collier, James R. Evans