No More Worries!

Our orders are delivered strictly on time without delay

Paper Formatting

Double or single-spaced
1-inch margin
12 Font Arial or Times New Roman
300 words per page

No Lateness!

Our orders are delivered strictly on time without delay

Our Guarantees

Free Unlimited revisions
Guaranteed Privacy
Money Return guarantee
Plagiarism Free Writing

The role of a senior member of the finance team

Take on the role of a senior member of the finance team assigned to lead the
investment committee of a pollution control equipment manufacturer. Your team is evaluating a "make-versusbuy" decision that has the potential to improve the company's competitiveness, but which requires a significant
capital investment in new equipment. The assignment is organized into two parts:
Part A: Data calculations based on the information in the scenarios
Part B: Recommendations based on the calculations
Opportunity Details
The new equipment would allow your company to manufacture a critical component in-house instead of buying
it from a supplier. This capability would help you stabilize your supply chain, which has suffered from some
irregularities and quality issues in the past. It could also positively impact profitability through the absorption of
fixed costs since this new machine will have plenty of excess capacity. There may even be a possibility that the
company could leverage this capability to create a new external revenue stream by providing services to other
companies.
The company has been growing steadily over the past 5 years, and the financials and prospects look good.
Your CEO has asked you to run the numbers. After doing some digging into the business, you have gathered
information on the following:

Full Answer Section

Additional Revenue from Excess Capacity:

This considers the potential revenue from selling services using the excess capacity:
- Additional Revenue = X * R * P

Part B: Recommendations will be based on the calculations from Part A in the next step.

Sample Answer

Scenario: The company is considering investing in new equipment to manufacture a critical component in-house, currently purchased from a supplier.

Information gathered:

Current Cost of Purchased Component:
- Let C = Annual Cost of Purchased Component
New Equipment Cost:
- Let E = Total Cost of New Equipment (including installation and setup)
New Equipment Useful Life (Years):
- Let U = Useful Life of the New Equipment (e.g., U = 5 years)
Annual Operating and Maintenance Costs for New Equipment:
- Let O = Annual Operating and Maintenance Costs
Excess Capacity of New Equipment:
- Let X = Percentage of Excess Capacity available (e.g., X = 20%)
Potential Revenue from Selling Excess Capacity Services:
- Let R = Annual Revenue per Unit of Excess Capacity (consider possible future negotiations)
Unit Production Increase Due to In-house Manufacturing:
- Let P = Annual Unit Production Increase

Calculations:

Cost Savings from In-house Manufacturing (Year 1):

This considers the eliminated cost of buying the component and the operating cost of the new equipment:
- Savings (Year 1) = C - (E / U + O)

Discounted Cash Flow (DCF) Analysis:

We need to consider the initial investment (E) and the annual savings over the equipment's useful life (U) adjusted for the time value of money.
You'll need a chosen discount rate (d) to perform this calculation.

Present Value of Annual Savings (PVAS):

This calculates the present value of all future savings:
- PVAS = Savings (Year 1) * [1 - (1 + d)^(-U)] / d

Net Present Value (NPV) of Investment:

This considers the initial investment and the present value of all future savings:
- NPV = PVAS - E