Price Identification And Financial Feasibility Study of Hydroponic Agriculture Iot Solution Launch Project at PT XYZ

Authors

  • Anjeli Siti Maliska Irawan School of Business and Management, Institut Teknologi Bandung
  • Mandra Lazuardi Kitri School of Business and Management, Institut Teknologi Bandung

DOI:

https://doi.org/10.58229/jims.v1i2.109

Keywords:

Internet of Things, Capital Budgeting, Risk Analysis, Willingness to Pay

Abstract

Since 2015, the Internet of Things technology has grown significantly, reaching over 400 million users by 2022 in Indonesia. Recognizing the potential, PT XYZ, an innovative Indonesian telecommunications company, intends to launch an IoT solution for hydroponic agriculture. The launch project requires an initial investment of around Rp 500 million. Given that amount, PT XYZ aims to determine the selling price using a value-based pricing strategy and assess the project's financial feasibility and risks before proceeding. Primary and secondary data will be utilized in this research to determine the customer's willingness to pay (WTP), Capital budgeting cash flow, which includes the hypothetical price of IoT, calculating the weighted average cost of capital (WACC), free cash flow to the firm (FCFF), and terminal value. The study used various capital budgeting techniques, such as net present value (NPV), profitability index, payback period, internal rate of return (IRR), and Excel's goal seek feature, to determine the IoT solution's pricing. A risk analysis using sensitivity and Monte Carlo simulations have conducted. The research finds that the present value of benefits, or WTP, for the IoT solution, is Rp 90,708,238. Considering PT XYZ's targeted internal rate of return of 20%, the determined selling price is Rp 20,120,408, which lies within the customer's WTP, making the project feasible. Capital budgeting techniques show a payback period of 4.08 years, an NPV of Rp 3,424,935,505, and a profitability index of 8.21 over five years, indicating positive outcomes. However, the sensitivity analysis reveals that a change in product price, cost of goods sold, and salary expenses will significantly impact the NPV, resulting in a 12.69% risk, with profitability remaining high at 87.31%. In conclusion, PT XYZ's hydroponic agriculture IoT solution launch project is considered feasible, considering potential risks and mitigation strategies.

References

Ajayi, V. O. (2017). Primary Sources of Data and Secondary Sources of Data. Distinguish Between Primary Sources of Data and Secondary Sources of Data.

Anderson, E. C. (1999, October 20). Monte Carlo methods and importance sampling. https://ib.berkeley.edu/labs/slatkin/eriq/classes/guest_lect/mc_lecture_notes.pdf

Ashton, K. (2009, June 22). That "internet of things" thing. https://www.itrco.jp/libraries/RFIDjournal-That%20Internet%20of%20Things%20Thing.pdf

Bank Indonesia. (2020). Inflation Data. https://www.bi.go.id/en/statistik/indikator/data-inflasi.aspx

CFI Team. (2020a, March 31). DCF terminal value formula. Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/financial-modeling/dcf-terminal-value-formula/

CFI Team. (2020b, April 1). Free cash flow to firm (FCFF). Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/financial-modeling/free-cash-flow-to-firm-fcff/

Collier, P. M. (2003). Accounting for managers: Interpreting Accounting Information for decision-making (4th ed.). John Wiley and Sons.

Cruz, J., & Perkins, W. (1964). A new approach to the sensitivity problem in multivariable feedback system design. IEEE Transactions on Automatic Control, 9(3), 216–223. https://doi.org/10.1109/tac.1964.1105720

Ganti, A. (2023, March 9). Terminal value (TV) definition and how to find the value (with formula). Investopedia. https://www.investopedia.com/terms/t/terminalvalue.asp#:~:text=Terminal%20value%20(TV)%20is%20the,of%20the%20total%20assessed%20value.

Gitman, L. J., & Zutter, C. J. (2002). Principles of Managerial Finance (14th ed.). Pearson Education South Asia Pte Ltd.

Gofton, L., & Ness, M. (1997). Business market research. Kogan Page.

Gubbi, J., Buyya, R., Marusic, S., & Palaniswami, M. (2013). Internet of things (IOT): A Vision, architectural elements, and Future Directions. Future Generation Computer Systems, 29(7), 1645–1660. https://doi.org/10.1016/j.future.2013.01.010

Hinterhuber, A. (2008). Customer value‐based pricing strategies: Why companies resist. Journal of Business Strategy, 29(4), 41–50. https://doi.org/10.1108/02756660810887079

Indeks Harga Produsen. Badan Pusat Statistik. (2018). https://www.bps.go.id/indicator/36/369/1/indeks-harga-produsen.html

Komalasari, W. (2022). STATISTIK MAKRO SEKTOR PERTANIAN 2022. Portal Satu Data Pertanian. https://satudata.pertanian.go.id/details/publikasi/379

Leon, F. M., Isa, M., & Kester, G. W. (2008). Capital budgeting practices of listed indonesian companies. Asian Journal Business and Accounting, 1(2).

Madakam, S., Ramaswamy, R., & Tripathi, S. (2015). Internet of things (IOT): A literature review. Journal of Computer and Communications, 03(05), 164–173. https://doi.org/10.4236/jcc.2015.35021

Making Indonesia 4.0 - kementerian perindustrian. (2018). https://www.kemenperin.go.id/download/18384

Mollah, Md. A., Rouf, Md. A., & Rana, S. M. S. (2021). A study on capital budgeting practices of some selected companies in Bangladesh. PSU Research Review. https://doi.org/10.1108/prr-10-2020-0035

Pandey, I. M. (2015). Essentials of Financial Management (4th ed.). Vikas Publishing House.

Perera, C., Liu, C. H., & Jayawardena, S. (2015). The emerging internet of things marketplace from an Industrial Perspective: A Survey. IEEE Transactions on Emerging Topics in Computing, 3(4), 585–598. https://doi.org/10.1109/tetc.2015.2390034

Prasetya, T., Harsono, N., & Pratama, R. A. (2020). Buku Putih Indonesia ICT industry outlook 2021. MASTEL Institute. https://mastelinstitute.id/books/buku-putih-indonesia-ict-industry-outlook-2021/

Provincial Minimum Wages and Inflation at DKI Jakarta. BPS provinsi DKI Jakarta. (2022). https://jakarta.bps.go.id/statictable/2022/08/29/607/upah-minimum-provinsi-dan-inflasi-di-dki-jakarta-1999-2021.html

Purwanti, T. (2022, September 5). Jejak Harga BBM RI: Dulu Pernah seharga Rp 0,3 per liter. CNBC Indonesia. https://www.cnbcindonesia.com/market/20220905074943-17-369212/jejak-harga-bbm-ri-dulu-pernah-seharga-rp-03-per-liter

Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2018). Fundamentals of Corporate Finance Sixth Edition. McGraw-Hill Primis, 44(8).

Saltelli, A., & Annoni, P. (2011). Sensitivity analysis. International Encyclopedia of Statistical Science, 1298–1301. https://doi.org/10.1007/978-3-642-04898-2_509

Sinha, S. (2023, May 24). State of IOT 2023: Number of connected IOT devices growing 16% to 16.7 billion globally. IoT Analytics. https://iot-analytics.com/number-connected-iot-devices/

Statista Market Insights. (2023). Internet of things - indonesia: Statista market forecast. Statista. https://www.statista.com/outlook/tmo/internet-of-things/indonesia#revenue

Telkom DWS. (2022). Teknologi IOT di Indonesia. MyCarrier. https://mycarrier.telkom.co.id/id/article/teknologi-iot-di-indonesia

Thompson, A. (2005). Entrepreneurship and Business Innovation. https://www.rochester.edu/aincenter/wp-content/uploads/2017/12/Business_Feasibility_Study_Outline.pdf

Vose, D. (1996). Quantitative Risk Analysis: A Guide to Monte Carlo Simulation Modeling. LEV, 41–46.

Yahoo! (2023). IDX Composite (^JKSE) historical data. Yahoo! Finance. https://finance.yahoo.com/quote/%5EJKSE/history?p=%5EJKSE

Downloads

Published

2023-08-29

How to Cite

Irawan, A. S. M., & Kitri, M. L. (2023). Price Identification And Financial Feasibility Study of Hydroponic Agriculture Iot Solution Launch Project at PT XYZ. Journal Integration of Management Studies, 1(2), 235–242. https://doi.org/10.58229/jims.v1i2.109

Issue

Section

Articles