If several attempts to repair the machine has been done but due to limited availability of the
Question:
If several attempts to repair the machine has been done but due to limited availability of the spare parts, being purchase only 3 years ago. Technical team from Head Office had confirmed these findings, and from joint discussion with external Technical Consulting team and Vendors further validated that from the initial purchase price of IDR 25 billion, if they are sold presently the company get no more than IDR 400 million for the entire equipment at the plant. The current machine has no market value at the end of its economic live.
PT. XYZ had anticipated these conditions early last year and already commissioned the same technical team to prepare alternative plan to invest in new equipment and machinery for MRHP. This has been based on maximum daily FFB processing capacity of 350 tons and facilitate the increase of 5% per year for the next 5 years. After final negotiation with the suppliers and contractors PT. XYZ procurement team received best quote through tender of IDR 40 billion base cost of the total replacement machinery and related hardware. Under the Turn-key project basis, additional 12 percent will be charged for the technical design, construction, installation and commission services;
Should the company replace into the new machine ? Explain the reason using initial cost, operating cash flow, terminal cash flow
Determine the NPV, IRR, payback period, profitability index using spreadsheet.
“Project A" will implement Plantation Optimization
program, this is to immediately overhaul the machinery and increase the production capacity of the CPO mill from the current maximum daily processing capacity of 300 tons of Palm Oil Fresh Fruit Branch (FFB). This increase in production capacity is in line with the projected rise of FFB for the next 10 years, in parallel with corresponding age profile of the maturing oil palm trees within their plantation. Yield of the FFBs from these plants is expected to rise annually by 5 pct.
The local management team has reported to Operations director at PT. XYZ head office relating to concerns in condition of the plant’s machineries. Based on the original built specification, the entire set CPO milling system machinery has an economic life of 5 years.
Actual processing capacity of the current CPO mill has been significantly reduced due to damage in the primary steam boilers at the plant. This was caused by uncontrolled mineral
deposits and had gradually restricts the flow of the heated steam to the sterilization chambers.
Several attempts to repair the equipment has been done but due to the limited availability of the customized spare parts needed, being purchase only 3 years ago.
Because of the above technical factors, in the current production year has been constrained. The plant can only be safely operated at daily load of 300 tons FFB per day. For the next three years, the technical team expects that this capacity will need to be gradually reduced by 6 percent each year. The Technical Support team from Head Office had confirmed these findings, and from joint discussion with external Technical team and Vendors further validated that from the initial purchase price of IDR 25 billion, if they are sold presently the company get no more than IDR 400 million for the entire equipment at the plant. The current machine has no market value at the end of its economic live.PT. XYZ had anticipated these conditions early last year and already commissioned the same technical team to prepare alternative plan to invest in new equipment and machinery. This has been based on maximum daily FFB processing capacity of 350 tons and Facilitate the increase of 5% per year for the next 5 years.
After final negotiation with the suppliers and contractors PT. XYZ procurement team received best quote through tender of IDR 40 billion base cost of the total replacement machinery and related hardware. Under the Turn-key project basis, additional 12 percent will be charged for the technical design, construction, installation and commission services; until ready for handover and production run to Production team at site. After the project ended, the team expected the market value of the proposed machines null.