Investment Feasibility Analysis Of Automation TechnologyUsing Real Options Approach And Monte Carlo Simulation
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Abstract
Conventional Net Present Value (NPV) analysis often undervalues capital investments in automation technology by failing to capture the strategic flexibility embedded in investment decisions. This study applies an integrated framework combining Real Options Valuation (ROV) and Monte Carlo simulation to assess the investment feasibility of industrial automation technology in the Indonesian manufacturing context. Using a binomial lattice model with 50,000 Monte Carlo iterations, the analysis demonstrates that the strategic NPV—incorporating options to expand, defer, switch, and abandon—reaches IDR 9.55 billion, significantly exceeding the static NPV of IDR 2.38 billion. The probability of a positive NPV is 78.4%, with a 95% confidence interval of [−IDR 1.2 B, +IDR 12.8 B]. Sensitivity analysis identifies revenue growth rate and capital expenditure as the primary value drivers. The results provide a rigorous, risk-adjusted decision support framework for manufacturing investment planners operating under technological and market uncertainty.
Keywords: Real Options Valuation, Monte Carlo simulation, automation investment, NPV, binomial lattice, sensitivity analysis, sustainable manufacturing
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