This is Assignment 2 [That is Questions 1 2, 3, 4, 5, 6]Question 1 needs to be 1,250 words
I have attached the questions and also attached the How to solve the questions. This was provided by my professor.Also, I have attached this Excel file from my professor for Questions 2, 3, 4, 5, 6
The Tutor needs to read this carefully understand it so that they can provide the correct solution.
Q.2. The updated report needs to explain how Annual worth, Present worth and Internal Rate of Return (IRR) are used in capital investment decisions. A manufacturing process can be designed for varying degrees of automation/ capacity with different costs of operations, energy consumption and service requirements including warranties. Generally, with higher costs the expected benefits are also higher. However, comparison of alternatives are not easy due to different expected life and cost parameters associated with each alternative. The following is relevant cost information table for a simple analysis: Alternatives Cost for procurement & installation Annual Labour Cost Annual Power and Maintenance Cost A B C D Organisations generally have a contract/ demand to supply certain number of units per year with a contract sale price of certain value per unit. You need to apply appropriate tools to determine the best option after-tax analyses using a tax rate of 25% and a minimum acceptable after-tax rate of return of 10% and straight-line depreciation of the asset for at least three alternatives. You need to consider expected life of each alternative and salvage value, if any after end of the life. Use each of the following methods for recommending the best option: (a) Annual worth. (b) Present worth. (c) Internal Rate of Return (IRR). Use excel for analysis and attach file as embedded file in word document/ upload file in Moodle for your analysis. Q.3. The updated report needs to explain Conventional and modified Benefit to Cost ratios and how these are used in capital investment decisions on two alternative machines, producing the same product, but one will produce higher quality items which can be expected to return greater revenue. Given the following data table, populate relevant data from your organisation/ proposed organisation for any asset for the organisation which alternative option is better. Use the B/C method, a study period of expected life, and a Minimum Acceptable Rate of Return (MARR) of 25%. Alternative A Alternative B Procurement and installation cost: 25,000 30,000 Salvage value: 2,000 1,000 Annual receipts/ revenues/cost savings: 12,000 15,000 Annual disbursements/ costs: 1,100 1,400 Life: 15 15 Determine the B/C values for each machine by using both the conventional and the modified formulations. Use excel and attach file as embedded file in word document/ upload file in Moodle for your analysis. CRICOS Provider No. 00103D Q4. Your company has to obtain some new production equipment to be used for the next ten years, and leasing is being considered. You have been directed to perform an after-tax study of the leasing approach. The data information for the study is as follows: Lease cost: First year, $110,000; second & third year, $85,000; fourth through to ten years is $65,000 per year. Assume that a 10-year contract has been offered by the lessor that fixes these costs over the 10-year period. Other costs (outside the contract) are $4,500 per year. The effective income tax rate is 40%. 1- Develop the Annual After-tax Cash Flow (ATCF’s) for the leasing alternative. 2- If the Minimum Attractive Rate of Return (MARR) after taxes is 10%, what is the equivelant annual cost for the leasing alternative? Q5. Machine X has been used for 12 years and currently has a book value of $37,500. A decision must be made concerning the most economic action to take: keep X, replace X with Y or replace X with Z. A before-tax analysis is to be performed. If machine X is continued in service, it can be used for another 12 years and scrapped at zero value. Annual operating and maintenance costs will equal to $75,000. If machine X is replaced with machine Y, a trade-in allowance of $22,500 will be provided for X. The original purchase price for Y, excluding the trade-in allowance, is $175,000. At the end of the 12 year planning horizon, Y will have a salvage value of $20,000. Annual operating and maintenance costs will total $55,000. If machine X is replaced with machine Z, no trade-in allowance will be provided for X. The purchase price for Z is $185,000. At the end of the 12-year planning horizon, Z will have a salvage value of $40,000. Annual operating and maintenance costs will total $47,500. Using a MARR of 10% and a before-tax analysis, determine the preferred course of action. Use excel for analysis and attach file as embedded file in word document/ upload file in Moodle for your analysis. The new improved machine will cost $16,500 including installation; it will have an estimated service life of 8 years and $2,000 salvage value. It is estimated that operating costs will average $1,550 per year. The present machine was purchased for $18,500 four years ago, and is estimated to have 8 more years of service life, at the end of which its salvage value will be $2,500. Operating costs of the present machine are $2,000 per year. If replaced now, it can be sold for $4,500. Using a MARR of 15% and present value analysis, determine whether to replace the existing machine on economic grounds. Use excel for analysis and attach file as embedded file in word document/ upload file in Moodle for your analysis. Q6. XYZ Company is considering replacing a machine. PLANNING AHEAD – FOR A BRIGHTER & SUSTAINABLE FUTURE Professor Syed Islam, Dean School of Science, Engineering and Information Technology MREGC5001 TEROTECHNOLOGY AND LIFE CYCLE COSTS How to approach assignment2 Gopi Chattopadhyay Lecturer and Course Coordinator How to approach Read course notes, text book, references and reading materials. Conduct research Reflect from workplace Make reasonable assumptions where needed. Use Excel and crosscheck answers using formula in calculator and tables from the book and resources. Submit word document and Excel work in Moodle. 2 Assignment 2 Q1 For this assignment students will be expected to present grammatically correct work that contains reasoned arguments. Students should demonstrate that they have read and understood the study material. In total, the submissions for this assignment should amount to between 1000 and 1500 words. Conduct further literature search for relevant resources (journal and conference papers) on Terotechnology, Capital Investment analysis and balancing capital expenditure and operational expenditure including maintenance and write a brief report on recommendation for your industry sector along with references at the end. You need to prepare a report/technical paper similar to way forward and road map starting from report/ technical paper on gaps submitted in assignment 1 to provide 1. Introduction with context of your organisation 2. Gaps verified in Life Cycle Costing 3. Recommendation for improvement for cost/benefit and risk management. 4. Supporting documents from your organisation as Appendix 5. References 6. Voice embedded Power Point slides (within 3 to 5 slides to share your contribution to stakeholders) 3 Assignment 2 Q2 Explain how Annual worth, Present worth and Internal Rate of Return (IRR) are used in capital investment decisions. A manufacturing process can be designed for varying degrees of automation/ alternative processes/ alternative machines. The following is relevant cost information table for 4 alternatives: 4 Degree First Cost Annual Labour Cost Annual Power and Maintenance Cost A B C D $IA $IB $IC $ID $LA $LB $LC $LD $MA $MB $MC $MD Assignment2 Q2 5 Organisation has a contract to supply 5000 units per year with a contract sale price of $P for each item. Determine which is the best option after-tax analyses using a tax rate of 30% and a minimum attractive after-tax rate of return of 10% and straight-line depreciation. Assume each alternative has a life of 6 years and 5% of original price as salvage value after end of the life. Use each of the following methods for scenario and relevant costs applicable to your workplace: (a) Annual worth. (b) Present worth. (c) Internal Rate of Return (IRR). Use excel and attach file as embedded file in word document/ upload file in Moodle for your analysis. Assignment2 Q3 6 What are the conventional and modified Benefit to Cost ratios and how these are used in capital investment decisions. Check in your workplace where equipment can be replaced by alternative brand with different price to buy and/ or different salvage value/ resale value/ disposal cost at the end of life, might have different cost to operate due to different energy rating, power consumption, spare parts etc. and different capacity/ production rate and/ or quality resulting different price of products from alternative options. Alternatively consider that two alternative machines will produce the same product, but one will produce higher quality items which can be expected to return greater revenue. Given the following data, determine which machine is better. Use the B/C method, a study period of 10 years, and a MARR of 10%. Assignment2 Q3 7 Machine A Machine B First cost: Salvage value: Annual receipts: Annual disbursements: $20,000 2,000 120,000 110,000 $30,000 0 150,000 140,000 Determine the B/C values for each machine by using both the conventional and the modified formulations. Use excel and attach file as embedded file in word document/ upload file in Moodle for your analysis. Assignment2 Q4 8 Your company has to obtain some new production equipment to be used for the next ten years, and leasing is being considered. You have been directed to perform an after-tax study of the leasing approach. The data information for the study is as follows: Lease cost: First year, $70,000; second year, $60,000; third through ten years, $50,000 per year. Assume that a 10-year contract has been offered by the lessor that fixes these costs over the 10-year period. Other costs (outside the contract) are $3,000 per year. The effective income tax rate is 30%. > Develop the Annual After-tax Cash Flow (ATCF’s) for the leasing alternative. > If the Minimum Attractive Rate of Return (MARR) after taxes is 10%, what is the equivalent annual cost for the leasing alternative? Assignment2 Q5 Select one of the ageing plants in your organisation. Say, Machine X has been used for N years and currently has a book value of