Investments in modern production technology and the cash flow-oriented EPQ-model

In this study, we analyze investments in setup and production processes in the context of the traditional inventory problem. The comparison of the results of a cash flow- and a cost-oriented model suggests the use of the net present value as a decision criterion. The analysis shows that an additional investment which reduces setup cost decreases the optimal capital investment necessary to reduce production cost and vice versa. An investment which increases the production rate, however, may increase or decrease the capital expenditure of an investment in the setup process. (C) 1998 Elsevier Science B.V. All rights reserved.