Ongko Furniture Recommendation

Ongko Furniture Store Scenario II
    Bali, Indonesia, a beautiful vacation spot, is also a large furniture manufacturing location in Southeast Asia. Bali’s supply of timber and inexpensive labor has made it easy for Jaya Ongko to make furniture for years near his Bali home (UOP, 2011). As global competition enters the market with high-tech equipment that produces high quality furniture for a lower cost, Ongko begins to feel the pressure. The nearby opening of one of the largest retailers in the nation’s headquarters, along with community development that results in increased labor costs, create a larger issue for Ongko’s company. Ongko is currently experiencing a lower profit margin, and it is time to follow one of three alternatives:   maintain its current position; implement a new high-tech system; or become a broker for a furniture manufacturer overseas. Ongko’s managers will use capital budgeting techniques to choose the best alternative that enables the company’s competitive advantage. This proposal presents an analysis of the optimal weighted average cost of capital (WACC), the use of multiple valuation techniques in reducing risks, and the net present value (NPV) of future cash flows for each of the alternatives.
    In determining the optimal approach for the company, Ongko must assess alternatives for financial decisions and determine the best course of action. One solution is to maintain the current business status.   This option allows foreign and larger companies to enter the market with newer technology. Another solution is to expand and remodel the plant with new technology and robotic automation.   In the long run, this will allow the company to lean out its manufacturing labor costs. By evaluating the opportunity costs against the initial capital expense of installing the high-tech line, management will determine if automation will offer the greatest savings and benefits over time. Decreasing cost of production and increasing revenues can only be...