Long Term Capacity Planning: The Comparison Between the Net Present Value, Return on Investment and Unitary Cost for Scale Analysis

Abstract

This paper is motivated by discussing the long-term capacity decision making. This decision is especially relevant to capital intensive production processes that require long-term planning. Among the many questions related to this subject, this paper aims to apply three financial parameters to compare scale alternatives. They are the Unitary Cost (UC), the Return on Investment (ROI) and the Net Present Value (NPV) and were calculated for a hypothetical process composed by two main resources. As results, the paper shows that the first two methods despite being trivial to apply don't have reliable results while the NPV proves itself as good parameters to compare the alternatives. It is also presented a sample of the use of the NPV as a parameter to analyse the scale as a meter to define the competitive strategy.