Capital budgeting plan for case company

This thesis was commissioned by an anonymous Pirkanmaa-based manufacturing company. Its objective was to form a capital budgeting plan for a new factory and research, which manufacturing line inefficiencies affect the company the most. Currently, the company operates on very slim margins due to various inefficiencies throughout the manufacturing process. With the new factory, the company is aiming to increase its operating margin and production quality by improving those inefficiencies found in this thesis. In theoretical framework, different capital budgeting processes and performance measures were analysed to find the most suitable tools to assess the company’s new investment opportunity. Various phenomena affecting the manufacturing line efficiency were also studied to find out, which factors contribute towards the efficiency the most. Department chiefs were interviewed to gain a more holistic view of the current situation and study, which inefficiencies found in the theoretical framework part affect the company. Document-based research was also conducted to determine the company’s current factory’s dimensions, recurring expenses, and financial data which was then scaled up to meet the requirements of the new factory. Capital budgeting analysis was conducted to estimate, how profitable the new investment is going to be with the company’s primary operating margin target. The investment was also analysed with more conservative operating margins to determine the investment’s breakeven point and potential risk. Research and calculations suggested that the company should undertake the investment opportunity since the incremental improvements required to turn the investment profitable were realistic. However, various factors of the future had to be assumed and forecasted, which lowered the capital budgeting analysis’ overall reliability. Before the investment can be undertaken in practice, the company must conduct further research on areas that could not be addressed in this thesis