Solvent Machine Investment for Increasing Digital Printing Profit

: This study evaluates the financial viability of investing in solvent printing machine units for producing two products — flexible material and sticker material — targeted at the MSME sector. The research uses capital budgeting techniques to determine project profitability, focusing on net present value (NPV), internal rate of return (IRR), payback period (PP), and profitability index (PI). The analysis finds that the project is financially viable, with an initial investment of IDR 281 million yielding an NPV of IDR 288.4 million and an IRR of 69.84%. The investment is projected to be recouped in under two years, with a profitability index of 5.13. Based on these findings, the research recommends increasing marketing efforts for flexible materials, supporting community initiatives, and offering free design services as strategies to enhance profitability and community engagement. These recommendations align with the financial analysis, suggesting ways to maximize returns and build customer loyalty.


INTRODUCTION
MSMEs play a crucial role in the Indonesian economy, contributing over 61% of the country's GDP annually and absorbing 97% of the workforce (Asikin et al., 2024;Salsabillah et al., 2023).The creative industry, which includes research and development, advertising, architecture, and design, is expected to weather the global financial crisis better than many other sectors.The printing industry is also growing at an encouraging rate, with the ICI (Industrial Confidence Index) value rising significantly to 52.35 in January 2024.The printing industry locations are distributed throughout Indonesia, with Sumatra, Java, Kalimantan, Bali, and Eastern Indonesia being the main locations (Rothenberg et al., 2017).
The digital printing industry is gaining popularity for company promotion and is expected to grow at a 5% rate.This growth can influence the demand for promotional media such as banners, brochures, and flag promotions in printing businesses (Brito & Pratas, 2015).Digital printing products can also support information media for community, institutional, or agency Asian Journal of Engineering, Social and Health Volume 3, No. 8 August 2024 activities by installing print media in targeted areas.The research was conducted at PT. Yudhis Digiprint, a company located in Sukabumi City, West Java, is one of the companies engaged in the printing sector.With a large number of MSMEs in West Java, the largest in Indonesia, the need for printing products is increasing.The increasing number of community activities and organizations in Sukabumi City require promotional props in the form of printed banners (Syahira et al., 2024).This has prompted printing businesses to continue developing their businesses.This company's digital printing business started as an MSME in 2023 and has since grown to become a leading digital printing and apparel company with production experience ranging from hundreds to thousands of prints and apparel per month (Ruvoletto, 2023).
The printing industry, especially solvent products, is a product that is always needed for product promotion, business, and organizational and community activities (Cseri et al., 2018).Along with the development of online advertising, this solvent product (flexi and stickers) is no less competitive than offline advertising needs, according to research at PT. Yudhis Digiprint Company was still taking finished products from partners to be resold to customers through resellers.From 2023 to May 2024, solvent product sales data increased by an average of 18.7% per month.The company has a potential margin of 55.28%, compared to reseller sales of 25%.Here is the sales data for solvent products in the graph below: This study aims to analyze investment, price, benefit value, and risk in order to provide investment recommendations for adding solvent machine units for the development of the printing business (Chang et al., 2018)

RESEARCH METHODS
This study uses quantitative methods to answer the research questions and research objectives as follows: 1.Is the investment in solvent machines profitable, according to the parameters used in capital budgeting techniques? 2. What are the sensitive variables that can affect the NPV? 3. What are the best and worst-case scenarios for the project?4. What is the probability of a positive NPV using Monte Carlo simulation?
The research objective of this study is to assess the financial feasibility of the project using capital budgeting techniques, including: 1. Analyzing investment by calculating the NPV value, internal rate of return (IRR), payback period, and probability index can be accepted and profitable.2. Evaluating which variables are sensitive to NPV when there is a positive and negative change in variables of 20%.3. Analyzing and calculating the best and worst scenarios of changes in variables that affect NPV. 4. Calculating and analyzing values that affect positive NPV with Monte Carlo simulation Statistical analysis allows researchers to identify patterns, trends, and relationships between different variables." in the book by Hen, Manion, & Morrison (2022).The research design is implemented through a comprehensive strategy that provides guidance for the entire research process, encompassing planning and data analysis (Poedjiastutie, 2021).Several research methodologies commence with the data collection methodology, followed by internal data analysis methods and capital budgeting analysis.

RESULTS AND DISCUSSION
In managing the business issue presented in the introduction, to analyze results by processing financial variables, several financial analyses are needed, as follows:

General Assumptions
The basic general assumptions developed to support the analysis of the project is detailed below: The sales projections assume a monthly indoor and outdoor product sales price of IDR 20,000 per meter based on market and competitor surveys.The banner production projection uses an average total print per month of 13.387 m2 per year, based on the Indonesian printing sector growth.
Operating expenses include employee salaries, wages, office supplies, and capital expenditures, excluding goods sold and significant assets (Lee & Lin, 2019).They exclude rental, general, administrative, salary, and depreciation costs.Capital expenditures, including solvent printing machines, are the total cost of establishing a business or investing, including work preparation, mobilization, and electrical installation equipment, adjusted for inflation (Field, 2022).The Solvent printer machine's residual value is projected to depreciate at 1.7% per month, reflecting the investment in the project's fixed assets.

Income Statement Projection
The Income Statement Projection estimates revenues and costs based on sales volume changes, often considering multiple main variables: The business operations are projected to generate revenue from digital printing, including apparel, sublime, and solvent machines, with a growth rate of 2.81%, based on a quantitative projection of 16,245 m2 and solvent machines projection for the next five years: The table presents the revenue calculation results for the company's ten years of operation: (Source: Author's Analysis) Operating profit margin indicates the "pure benefit" received for every rupiah earned, as it only accounts for operating profits and excludes interest, taxes, and dividends on preferred stock.
As shown in the table above, the net profit margin calculated from the initial year of business operations increases to a 34% to 41% annual margin over a five-year period.The average net profit margin over a five-year period is 39%.The projection of operating expenses for general, administrative, and salary expenses, with a baseline of 16.9% of the COGS value, reveals building rent cost as the largest contributor at 44%, above are as follows in the graph below: After calculating net profit, the author also use the formula below to calculate the net profit margin of the business: The net profit margin from the initial year of business operations increases from 34% to 41% annually over a five-year period, with an average of 39%; using that formula, the author's calculation for operating profits is shown in the table below: Solvent printing machines are funded through owner's equity, with no long-term debt used in projections (Brunnermeier & Krishnamurthy, 2020).To be acceptable to the firm's owners, the project must generate returns enough to compensate the capital supplier.Companies can raise funds from debt and equity, with the project assumed to be fully financed with company equity.The cost of equity measures the rate of return a company must earn on equity investment.Capital costs are the actual costs a company incurs to obtain funds from various sources (Phalippou et al., 2018).Preferred stock, common stock, debt, or profits can provide funds for accumulated investments or operational projects.An initial investment of the project is fully financed by equity.The cost of equity is calculated using a bottom-up approach, which is shown in the table below: The author uses an operating cash flow (OCF) projection to calculate the cash flow of all investments, as the owner's equity fully finances them.The results of the operating cash flow (OCF) calculation are shown in the table below: (Source: Author's Analysis) Profitability analysis uses four parameters: net present value (NPV), internal rate of return (IRR), payback period (PP), and profitability index (PI) to assess business profitability.Each parameter has different criteria and produces certain results after calculation, as illustrated in the table below:

Sensitivity Analysis
The sensitivity analysis of this project is displayed in the tornado chart, serving as a guide for making adjustments to assess the risks associated with different variables (Borgonovo & Plischke, 2016).The tornado chart is a valuable tool for assessing deterministic sensitivity and comparing the relative significance of variables (Gal & Ghahramani, 2016).The author employs a +20 percent swing and -20 percent swing to evaluate changes in NPV by modifying variables.
Based on the tornado diagram given, the variables that have the greatest impact on the change in NPV are the price of product A (Flexi) and the Volume of sales of product A (Flexi) (El-Temtamy & Gendy, 2014).This variable produces a significant change in NPV of 63.20%.In terms of its impact on changes in net present value (NPV), the price of product B (Sticker) and the Volume Asian Journal of Engineering, Social and Health Volume 3, No. 8 August 2024 of sales of Product B (sticker) have the smallest variability, with a fluctuation of 0.76% in the change in NPV.The following are the comprehensive results of the sensitivity analysis: The authors conducted a scenario analysis using 20% most responsive variables from sensitivity analysis to determine the optimal, most favorable, and least favorable outcomes of various potential events (Song et al., 2015).

Monte Carlo Simulation
Table 11 shows that the most unfavorable outcome results in a negative net present value (NPV) of IDR (28,122.303.8), while the most favorable outcome yields a NPV of IDR 481,098.237.2, more than twice the base scenario's projected value.
The Monte Carlo simulation method is used to analyze investment decisions and assess risks, ensuring the right decisions under uncertainty (Pereira et al., 2014).Each variable is assigned a random number based on its range, and the model is calculated thousands of times.Upon completion, several model results are obtained, each based on a randomized input number (Hu et al., 2019).The results describe the trend or chance of variations in the model's results, including statistics like max, min, mean, standard deviation, median, kurtosis, skewness, and probability NPV<0.The simulation output is displayed in a histogram chart.The mean of NPV across simulation is IDR 260,023,181.24with a minimum value of negative IDR 885,144,718.82and a maximum value of IDR 1,225,435,653.40, or it can be explained that the average NPV is IDR 260,023,181.24this is the added value that this project can provide to PT. Yudhis Digiprint, where the company's revenue will increase through an efficiency cost amount of IDR 260,023,181.24 in present value Judging from the distribution, this value falls within the standard deviation range.The best possibility is that this project will generate revenue of IDR 1,225,435,653.40, and the worst possibility is if all variables do not meet expectations.This project will still generate revenue of IDR 885,144,718.82,which is negative for PT.Yudhis Digiprint.The probability of failing this project (NPV<0) is 18.9% CONCLUSION PT Yudhis Digiprint is a digital printing company that offers a range of advertising solutions, including merchandise and clothing for promotional or event purposes.The company utilizes advanced technology, sophisticated machines, and accounting software, offering free custom design services and unlimited revisions to ensure customer satisfaction.With the increasing number of micro, small, and medium enterprises (MSMEs) in West Java and the popularity of ordering through marketplaces and smartphones, the digital printing industry has increasing profit potential.The company requires a capital expenditure of IDR 281 million for solvent machines for flexi and stickers, funded through owner equity.The business generates revenue from sublimation machine production, clothing, and solvent products.A feasibility study is currently underway to procure machines for solvent product production.The solvent machine production's net present value (NPV) is IDR 288,404,195, with an internal rate of return of 69,84%.The business has the potential to return its initial investment within one year and eight months of operation.REFERENCES

(
Source: Company sales report 2023 -2024) Figure 1.Revenue from sales of solvent products

Figure 2 .
Figure 2. Solvent's Machine Production (Source: Author's Analysis, 2023-2024)The company calculates revenue for solvent machine production using average sales prices per square meter, ranging from IDR 20,000 for flexi to IDR 65,000 for stickers, which increases with inflation each year; the formula below:Total Revenue=Total Volume Production x price

(
Source: Author and Internet Research) Therefore, in this calculation, the weighted average cost of capital (WACC) is represented as the cost of equity; the cost of equity (based on (Paramartha et al., 2021) can be obtained from the formula below: Where: rs = cost of equity Rm = market rate of return β = beta Rf = risk free rate Rm -Rf = risk Premium

Table 1 . General Assumption and Indonesia Inflation Rate
(Source: Author's Analysis, 2023) Asian Journal of Engineering, Social and Health Volume 3, No. 8 August 2024

Table 5 . Net Profit Margin
Cost of Capital (Cost of Equity) CalculationAsian Journal of Engineering, Social and Health Volume 3, No. 8 August 2024