You are working at an engineering company called Muhendis, Inc.. Your boss, Kartal, asks you to...

  

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You are working at an engineering company called "Muhendis, Inc.". Your boss, Kartal, asks you to evaluate two options for an investment project which would bring quantified benefits to your company. The project life is estimated as 5 years. Muhendis, Inc. wants to expand its production line by buying new machines and they have two options to choose from: • Machine type 1: its purchasing cost is $23,000 and the annual maintenance cost would be $2,500. Every machine I could produce 10,000 units per year. Machine type 2: its purchasing cost is $15,000 and the annual maintenance cost would be $2.000 per machine. Every machine 2 could produce 6,500 units per year. The marketing department forecasted the next five year's demand. The results are shown in the table. The company defined that the manufacturing team should meet the demand per year but not produce more than the demand. years Demand 15000 16000 17000 18000 19000 Muhendis sells a unit produced for $3.2. On the other side, the cost of raw materials is $0.40 per unit produced. To compute the labor cost consider that the company pays $14 per hour, and a worker needs 3.45 minutes to finish one unit. The annual overhead (fixed cost) is $6,000. Additionally. Muhendis expends an installation fee of $2,000 per machine. These machines would last Muhendis for 10 years and they fall in 7-year MACRS class. You already found a suitable buyer for all the machines in the next 5 years so the project would end early in year 5. The buyers will pay 30% of the purchasing cost per machine as the salvage cost. Company's MARR is given as 20% and the tax rate is 25%. Your job is to summarize quantified benefits of this company from this project and file a report. 1.1 Comparing alternatives (80%) Make an income statement and a cash flow statement for each project using a spreadsheet (You could use the template published on canvas) and show PW and IRR for each project (option 1 and option 21 Which option is the best? Why? 1.2 Loan (20%) Your supervisors suggest borrowing $10,000 at 7% APR compounding monthly. The company plans to pay in 5 equal annual installments. Do you recommend to take the loan? Why? 1.3 Sensitivity Analysis (bonus: +4% in the final grade) Perform sensitivity analysis for ±20% interval (-20% -15%, 15%, 20%), on variables listed below for the project you chose in the previous question: • Labor cost ($ per hr). • material cost (S/unit), • loan rate. unit price (S/unit) and • Initial investment. . Conclude the analysis using graphs, tables etc. and summarize your finding in your report. Figure the break-even point of the key variable. You are working at an engineering company called "Muhendis, Inc.". Your boss, Kartal, asks you to evaluate two options for an investment project which would bring quantified benefits to your company. The project life is estimated as 5 years. Muhendis, Inc. wants to expand its production line by buying new machines and they have two options to choose from: • Machine type 1: its purchasing cost is $23,000 and the annual maintenance cost would be $2,500. Every machine I could produce 10,000 units per year. Machine type 2: its purchasing cost is $15,000 and the annual maintenance cost would be $2.000 per machine. Every machine 2 could produce 6,500 units per year. The marketing department forecasted the next five year's demand. The results are shown in the table. The company defined that the manufacturing team should meet the demand per year but not produce more than the demand. years Demand 15000 16000 17000 18000 19000 Muhendis sells a unit produced for $3.2. On the other side, the cost of raw materials is $0.40 per unit produced. To compute the labor cost consider that the company pays $14 per hour, and a worker needs 3.45 minutes to finish one unit. The annual overhead (fixed cost) is $6,000. Additionally. Muhendis expends an installation fee of $2,000 per machine. These machines would last Muhendis for 10 years and they fall in 7-year MACRS class. You already found a suitable buyer for all the machines in the next 5 years so the project would end early in year 5. The buyers will pay 30% of the purchasing cost per machine as the salvage cost. Company's MARR is given as 20% and the tax rate is 25%. Your job is to summarize quantified benefits of this company from this project and file a report. 1.1 Comparing alternatives (80%) Make an income statement and a cash flow statement for each project using a spreadsheet (You could use the template published on canvas) and show PW and IRR for each project (option 1 and option 21 Which option is the best? Why? 1.2 Loan (20%) Your supervisors suggest borrowing $10,000 at 7% APR compounding monthly. The company plans to pay in 5 equal annual installments. Do you recommend to take the loan? Why? 1.3 Sensitivity Analysis (bonus: +4% in the final grade) Perform sensitivity analysis for ±20% interval (-20% -15%, 15%, 20%), on variables listed below for the project you chose in the previous question: • Labor cost ($ per hr). • material cost (S/unit), • loan rate. unit price (S/unit) and • Initial investment. . Conclude the analysis using graphs, tables etc. and summarize your finding in your report. Figure the break-even point of the key variable.

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