Analysis of Capital Budgeting for Purchasing Trailers Project to Use with Piling Work. A Case Study of Roi-Et Prestressed Concrete Co., Ltd.

Abstract

This study aimed to study capital budgeting for purchasing trailer projects to use with piling work, a case study of Roi-Et Prestressed Concrete Co., Ltd, in addition to comparing and summarizing the options between investment in purchasing trailers and hiring independent contractors (outsourcing). It utilized financial theories to consider the free cash flow and the weighted average cost of capital (WACC) and then determine the net present value (NPV), internal rate of return (IRR), modified internal rate of return (MIRR), payback period, discounted payback period and sensitivity study. The investment and financial management plan involved an investment cost of 3,550,000 baht, with 532,500 baht from the owner's equity and 3,017,500 baht from a financial institution loan. The WACC is 4.21%. The capital budgeting analysis based on financial theories revealed that the NPV of hiring independent contractors (outsourcing) was higher than the NPV of investment in purchasing trailers. Hiring independent contractors (outsourced) has an NPV of 8,813,386.51 baht, while the investment in purchasing trailers had an NPV of 5,997,712.07 baht. the IRR was 89.9%, and the MIRR was 34.4%. The payback period was 1.17 years, and the discounted payback period was 1.247 years. The sensitivity analysis showed that the worst-case scenario of hiring independent contractors NPV is 7,007,043.61 baht, and the worst-case scenario of investment in purchasing trailers NPV is 3,596,104.38 baht. As a result of the analysis, it can be concluded that Roi-Et Prestressed Concrete Co., Ltd. should invest in hiring independent contractors (outsource) because it has the highest net present value (NPV).