Assessing Manufacturing Capital Investments in the Global Market

Manufacturing activities are becoming more global because of the need for manufacturers to be closer either to the sources of raw materials or the markets of the manufactured products or both. Oftentimes, the sources of both raw materials and products markets are located in foreign countries. Thus, as a consequence of the rapid expansion of global economic activities some universities in the United States are now requiring their incoming freshmen to take a course in foreign language before graduation. Therefore, it is appropriate to introduce students in a manufacturing engineering technology program to the tools that they may need to evaluate manufacturing projects in the global manufacturing market. These projects may have inherent risks or uncertainties emanating from political instabilities in the countries where the projects are located, or from unproven technologies (such as deep-sea drilling of crude oil), or from the shortage of skilled labor. Traditionally, capital projects with uncertainties have been evaluated using tools such as the net present value (NPV) capital asset pricing model coupled with sensitivity, break-even, or cash-flow scenario analyses. These tools mainly examine the variability in projected cash flows of projects with uncertainties. Alternatively, with adjusted net present value (ANPV) capital asset pricing model, each cash flow stream in a project is assigned an expected rate-of-return that is commensurate with the risks of the cash flow. This allows for the decoupling of individual cash flow stream (e.g., capital outlays, revenue, taxes) and their subsequent proper evaluation rather than use a single rate-of-return as is done in the traditional net present value (NPV) model. In this study, ANPV was used to evaluate the economic viability of a plastics plant in a foreign country and the results compared with those of the net present value (NPV) model. The primary intent of this study was to introduce manufacturing engineering technology students to capital investment analyses of manufacturing ventures in the international arena. To assess if this goal was achieved, a survey was given at the beginning and at the end of the course to assess students’ learning outcomes. The result of this study will be presented at the conference.