SOUTHERN CROSS ENGINEERING

Metal Sheet Work

Processing Plant Project
Devon Hindshaw (13654652) HendiRofiansyah (14983234) Devon Hindshaw (13654652)

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Contents
1 Project Background ......................................................................................................................... 3 1.1 Project Selection ..................................................................................................................... 3 Evaluation Criteria........................................................................................................... 3 Project Overview ............................................................................................................. 3 Project Scope .................................................................................................................. 4 Feasibility Evaluation ...................................................................................................... 4

1.1.1 1.1.2 1.1.3 1.1.4 1.2 1.3

Staffing and Project Management Teams............................................................................... 5 Environmental Issues .............................................................................................................. 5 Scrap metal Waste .......................................................................................................... 5 Oil Waste ......................................................................................................................... 5 Water Pollution ............................................................................................................... 5 Noise Pollution ................................................................................................................ 5 Air pollution .................................................................................................................... 6 Other waste..................................................................................................................... 6

1.3.1 1.3.2 1.3.3 1.3.4 1.3.5 1.3.6 2

Project Organisation ....................................................................................................................... 6 2.1 Time Management and Work Breakdown Structure .............................................................. 6 Time Management .......................................................................................................... 6 Work Breakdown Structure .......................................................................................... 11

2.1.1 2.1.2 2.2

Project Controls, Scope Management and Contracts ........................................................... 12 Project Controls ............................................................................................................ 12 Scope Management ...................................................................................................... 13 Contracts ....................................................................................................................... 13

2.2.1 2.2.2 2.2.3 3

Project Cost and Financial Issues .................................................................................................. 14 3.1 Cost Estimates and Cost Drivers ........................................................................................... 14 Fixed Costs .................................................................................................................... 14 Variable Costs................................................................................................................ 14

3.1.1 3.1.2 3.2

Financial Analysis, Time Value of Money & Effect of Inflation ............................................. 15 Financial Analysis .......................................................................................................... 15 Time Value of Money & Effect of Inflation ................................................................... 16

3.2.1 3.2.2 3.3

NPV, Annual Worth Analysis, Funding, Cost of Capital, and Cost of Debt ............................ 17 NPV and Annual Worth Analysis ................................................................................... 17 Cost of Capital and cost of debt: ................................................................................... 19 22

3.3.1 3.3.2

Operating for 10 Years .................................................................................................................. 20 4.1 4.2 Pricing and Breakeven Analysis............................................................................................. 20 Depreciation and Taxes........................................................................................................... 1 Land Price in the future................................................................................................... 1

4.2.1 5 6 7 8

Summary and Conclusions .............................................................................................................. 2 References ...................................................................................................................................... 3 Appendix A: Group Operations ....................................................................................................... 5 Appendix B: My Role in the Group.................................................................................................. 6 8.1 8.2 8.3 Yuri Montemurro .................................................................................................................... 6 Hendi Rofiansyah .................................................................................................................... 6 Devon Hindshaw ..................................................................................................................... 6

Table 1: Project Evaluation matrix .......................................................................................................... 3 Table 2: SWOT analysis for Sheet Metal Processing Plant ...................................................................... 4 Table 3: Fixed Costs............................................................................................................................... 14 Table 4: Variable Costs .......................................................................................................................... 14 Table 5: NPV Analysis ............................................................................................................................ 18 Table 6: Average Consume of Colorbond Products per Household ..................................................... 20 Table 7: Cost per each unit sold ............................................................................................................ 20 Table 8: Average quaintly per Household ............................................................................................. 21 Table 9: Cost per Unit Sold.................................................................................................................... 21 Table 10: Operational Costs .................................................................................................................. 21 Table 11: Expected Profit / Loss Statement for 10 years operation ........ Error! Bookmark not defined. Table 12: Description on Depreciable Assets.......................................................................................... 1 Table 13: Depreciation of Assets ............................................................. Error! Bookmark not defined. Table 14: Appreciation of land ................................................................................................................ 1

Figure 1: Projectised Team Organisation .............................................................................................. 11 Figure 2: Activity Responsibility Chart .................................................................................................. 12 Figure 3: Balance Sheet for initial 3 years ............................................................................................. 15 Figure 4: Time value of Money ............................................................................................................. 17 Figure 5: Net Present Value .................................................................................................................. 18

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1 Project Background
1.1 Project Selection
1.1.1 Evaluation Criteria Southern Cross Engineering has the opportunity to expand its business with a large variety of areas to invest. Implementation of a new business is risky with research suggesting that rate of new business failure can be as high as 50% in the first two years (Hutchings, 2009). The most feasible project has to fit the following criteria:
Table 1: Project Evaluation matrix Wastewater Plant Metal Sheet Plant Microcircuit Plant Metropolitan WiFi

Luxury Car Batteries

High-Tech Complex

Risk Demand Expertise Available Investment amount Payback Period Competition Total

3 3 2 3 3 1

2 2 2 3 2 3

2 1 1 3 3 2

3 3 2 3 2 1

3 3 2 3 2 3

1 1 1 2 2 1

Hospital Extension

Criteria

2 1 3 3 3 2

2 2 2 3 2 2

1 1 2 3 3 3

3 3 3 3 2 1

15

14

12

14

16

14

13

13

15

An Unweighted Factor Model was used to evaluate each projects possibility (Eren, 2010). Each project is given a score from 1 to 3 for each criterion. A score of 1 means good, 2 average and 3 poor. The investment opportunity that accumulates fewer points in the evaluation matrix will be considered the most feasible. After studying the evaluation matrix the implementation of a metal sheet processing plant has proven to be the most feasible option aligning with existing company profile. 1.1.2 Project Overview Australias population has had a considerable positive growth rate with Western Australia having the largest growth rate of 2.7% as at the 31st December 2009 (Australian Bereau of Statistics, 2010). Additionally as a result of the increasing population a prediction of 128,000 dwellings per year are needed by 2011 with 10,000 needed in the Perth Metro Area (Australian Housing and Urban Research Institute, 2004). Regional Western Australia recorded an increase of 20% in occupied dwellings in the ten years prior to 2006 with median house prices souring due to high demand (Australian Bureau of Statistics, 2008). 22

Rare Earth Plant

Traffic Lights Control Centre

Biomass Fuel

Power Dist. Centre

3 3 2 2 3 1

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Southern Cross Engineering, as an existing competitor in the construction industry can further gain an advantage in the industry grasping the opportunity to expand into a new division of sheet metal fabrication. Products such as corrugated roofing, fencing, gutters/downpipes and window/door frames are needed in construction industry and by incorporating new designs and widening the range currently available in the market the company can fill the industry gap and strengthen their name. 1.1.3 Project Scope The project planning is structured such that production is started after approximately two years, during these three years all the steps from acquiring a building to personnel hiring and testing should be complete. 1.1.4 Feasibility Evaluation A SWOT analysis as shown below helps analyse the feasibility of the project. As seen below there are far more opportunities and strengths in the implementation of a Sheet metal processing plant. Additionally, an action plan must be made to minimise and avoid the few weaknesses and threats (Hutchings, 2009).
Table 2: SWOT analysis for Sheet Metal Processing Plant

Strengths

Weaknesses

Southern Cross Engineering is an existing company and has a good reputation in the The company is within a strict budget and will industry already need to borrow cash from investors or the bank The company already has a good engineering It will take a relatively long time to set up the background / level of expertise project, thus no initial return on investment Existing business experience Opportunities Threats

The construction industry and increase in new There are other sheet metal companies within housing in Western Australia leaves a gap in Australia - this is overcome by offering a unique the market range of products different from competitors A gap in the market for sheet metal products for construction industry Business in Perth means it is in a close proximity to construction operations and companies

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1.2 Staffing and Project Management Teams

Initially within the initial phase of the project the project management team will be in charge of all aspects of the project from set up and hiring of personnel. The project management team will consist of three engineering personnel. As the project develops the three project managers will be designated individual roles as the departmentalization process develops with one being in charge on the overall project. More information about the Work Breakdown Structure and the personnel structure can be seen in section 2.

1.3 Environmental Issues

Environmental pollution produced by the shops are: oil waste, noise level, air, and water. the impact of pollution produced could be harmful to the health or comfort of humans and animals or could cause damage to plants or materials. They need to be controlled within the approved limits by city council or to be eliminated. The company will have environmental protections policies comply with Environmental Protection Act 1986 (Western Australian Consolidated Acts). 1.3.1 Scrap metal Waste Scrap metal waste are valuable waste come from the production, these metals could be reform by foundry industry. The company could make some money by selling these scrap metals to foundry industries., the concerns are the amount, storage, and area of the scrap metal shall be controlled, they should not harm to the environment as the metals do corroded, it shall not in direct contact with the ground. 1.3.2 Oil Waste Oil waste produced by the machines are form from engine oil, lubricant oil, etc. the government of WA having strict policy of dangerous waste management, to manage the waste, the company need to be approved by the government after going through assessments. The company decide to have subcontractor to manage the waste of the company. The price for contaminated oil waste treatment will be high compare to pure waste oil. Optionally to reduce subcontractor fees of purification contaminated waste oil the company could perform in-house contaminated oil waste treatment. 1.3.3 Water Pollution Water would be polluted from the machinery oil waste gone to the drainage, the company would make 2 drainages, which are for non-harmful waste come from office and harmful waste water come from shops. On the harmful waste water drainage, we will provide oil trap control & siphon pipe, this will separate the oil and water, after that the water will go to first pond of treatment before it can be release to the environment, a test pond contain fishes could be make before the water goes to common drainage. 1.3.4 Noise Pollution Noise maximum level A machine is deemed to be too noisy if Measurements taken between 7:00 am and 10:00 pm on the same day show the continuous source noise level exceeds 52 dB(A), or Measurements taken between 10:00 pm on one day and 7:00 am the following day show continuous source noise level exceeds 45 dB(A).test noise measurement by decibel meter will be taken from out of the shops wall, because the company decided to run 8 hours per day, therefore the limits set should not exceeds 52 dB(a), reducing noise method could come from the machine process itself or the surrounding.

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1.3.5 Air pollution The air pollution would not be high on the shops, since there is no big combustion engine used such as generator sets. However the control should be taken into consideration. 1.3.6 Other waste Other wastes produced, it is organic or non-organic, will follow the common council rule of managing those wastes, i.e.: separate bin.

Project Organisation

2.1 Time Management and Work Breakdown Structure

2.1.1 Time Management Please refer Gantt chart on pages 8,9 and 10 2.1.1.1 Set up for production date 2.1.1.1.1 Purchase of plant The purchase of the plant will be performed by the Project managers. The plant will be running for 24 hours a day, hence a location with no noise restrictions at night is needed. Additionally the plant needs an adequate power supply. 2.1.1.1.2 Head Workforce The Project Management team will be split up with one being in charge and the other two being put in charge or relevant engineering departments. The Project manager is then in charge of hiring of the heads of other departments such as sales, marketing and Health and safety. The Administration and Sales Head needs to have an accounting background to be able to be in control of the accounts during the production phase. 2.1.1.1.3 Product Design The Engineering team alongside the project managers and Marketing team will research specifications and needs of the type of sheet metal products required. This will be done through market and competitor research to define the trends in the building industry and the needs of customers. Once requirements are defined they will design each product and draw up specifications and diagrams for machinists and production staff to follow. 2.1.1.1.4 Purchase Machinery and Equipment Engineering staff will purchase the machinery within their given budget. They are to report to the project managers. The project managers will assign a budget to each department, Sales, Health and Safety and marketing to set up each team. Purchasing of equipment will be done by the head of each department. 2.1.1.1.5 Establishment of the Processing plant Establishment of the processing plant consists of setting up the plant for production. The actual production floor needs to be laid out with all the machinery in an optimal layout for production efficiency. The Layout will be designed by the head engineer alongside the project managers. The setup of the office will be initiated by the project managers. External parties will be responsible for 22

the setup of the office space. Once the actual layout of the plant is complete Health and Safety will set up relevant health and safety equipment and establish emergency procedures. 2.1.1.1.6 Workforce The Project managers will employ a Head of Marketing department. After this the Heads of each department will be in charge of employing their own departments team. The Head engineer will double as the quality control and Assurance Head as well once production commences. 2.1.1.1.7 Training / Team building The head of each relative department is in charge of training their staff and assigning their required tasks. Health and Safety heads are responsible for training staff on relevant procedures for emergencies. 2.1.1.1.8 Advertising The Marketing team run by the department manager will be in charge of setting up a web site and all relative advertising; they must consult with the other departments before consulting with customers concerning pricing and products. 2.1.1.2 Production Period 2.1.1.2.1 Marketing and Advertising An ongoing process of marketing and advertising will occur throughout the 10 year production period. The first year of sales will incur a discount rate to attract new customers and to get our products out. 2.1.1.2.2 Production Each order for products will be assessed by the relative management and dates will be assigned for each project making sure that the clients get their orders on time.

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2.1.2 Work Breakdown Structure A projectised team formation is ideal as it uses functional departmentalisation. By having this WBS the project manager has authority over the project, costs and communication is simple (Eren, 2010).
Figure 1: Projectised Team Organisation

Project Manager

Head of Engineer

Head of Quality Control & Assurance

Head of Admin & Sales

Head of HSE

Head of Marketing

Mechanical & Design Engineer

Manufacturing Engineer

Quality Control

Accountant

HSE Team

Sales Team

Maintenance

Suppervisor

Legal & HR

Foreman

Machine Operators

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2.2 Project Controls, Scope Management and Contracts

2.2.1 Project Controls

Figure 2: Activity Responsibility Chart

Marketin g Division Safety & Environmental Division

Activity No

Planning and Design

Manufacturing Division

Quality Division

Administration Division

Project Manager

Mechanical & Design Engineer

Manufacturing Engineer

Head of Administration

Account/Book Keeping

Machine Operators

Head of Marketing

Reception/Admin

Head engineers

Quality Control

Maintenance

Head of HSE

Innitiation and Project Objectives Purchasing of Plant Product Design Purchase of equipment & machinery establish the processing plant Training safety, enviromental , and legal certification / issue advertising

Legend

= Initiate = Involve = Advice on = Review

= coordinate = implement = develop

(Eren, 2010)

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OHSE Team

Head of QA

Sales Team

Legal & HR

Supervisor

Foreman

2.2.2 Scope Management The company works cover all production, sales & distribution, and after sales services. Other work such as waste management, IT management and building maintenance will cover by subcontractor, maintenance department inside the company are used mainly for maintenance of the machines and equipment. 2.2.3 Contracts The use of subcontractors for specialized services increases working efficiency and avoids unnecessary liability, the services that will be subcontracted are: - Waste Management - Building Maintenance - Information and Technology The contract agreement will be made under common law / contract law (Clarke, 2010), the subcontractor is expected to be based in Australia, having all required legal documents from local council, it is highly desirable a subcontractor with a international management system such as an ISO series or Australian Standard. The company would prefer unrestricted tendering, where public advertising will be made on the local newspaper. Waste management contractor shall have valid certificate on managing waste, attending to local and national government standards and provide a valid government approval. The contractors maximum capacity should not be exceeded when dealing with the waste from the company, the contractor is expected to control all the waste from production, all legal and environmental issues. Waste such as scrap metal is valuable; therefore any income from scrap metal waste could be used for paying the waste contractor or could be used as additional income for the company. Building Maintenance contractor is required to keep the building and garden in fit condition all the time, downtime of the building for maintenance will not be accepted, the contractor shall maintain a good schedule of inspecting the building including its electrical, ground, air conditioning and plumbing. Any non-conformity found is required to be immediately repaired, a report must be produced and any further action will need to be reviewed and approved by the project manager, any cost incurred during repair will be reimbursed to the contractor by the company and accounted as operational cost. Information & Technology (IT) contractor expected to build and manage the computer system within the company and the website, including its maintenance. The IT company preferable to have the personnel works on the company, this is to prevent downtime of IT failures, all purposed change of IT shall follow the company rule, which need to be approved by project manager.

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3 Project Cost and Financial Issues

3.1 Cost Estimates and Cost Drivers
3.1.1 Fixed Costs
Table 3: Fixed Costs

Fixed Costs Building Machinery and Equipment Insurance ISO certification Initial training Wages TOTAL

$4,000,000.00 $4,000,000.00 $1,500,000.00 $400,000.00 $150,000.00 $1,500,000.00 $11,550,000.00

3.1.1.1 Building The new metal sheet processing plant will require a physical area from 3500 m to 4500 m. The market price for suitable warehouses range from $3,000,000 to $4,000,000. 3.1.1.2 Machinery and Equipment The purchase of multifunctional machines avoids the need of multiple machines, even though they are relatively expensive they are more cost effective, saving the company some money and making maintenance schedules easier to control and cost effective in a sense. It is estimated the expense of $3,300,000 for the purchase of the machines and equipment, although some additions are expected as production increases so 40% of the initial budget will be allocated for Machinery. 3.1.1.3 Insurance Insurance will cover all machinery, equipment, building and personnel in case of any circumstance including theft, fire or injury. 3.1.1.4 ISO certification ISO certification will be implemented into the company to ensure the company runs according to international management standards. 3.1.1.5 Initial training Approximately a month period of initial training and team building will ensure employees work well in their teams and know exactly their duties. 3.1.1.6 Wages Wages includes wages of clerical, accounting, engineering staff is estimated to be $1,500,000.00 for the initial 3 years prior to start of production. 3.1.2 Variable Costs

Table 4: Variable Costs

Variable Costs Inventories Overheads TOTAL

$ $ $

200,000.00 300,000.00 500,000.00

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3.1.2.1 Inventories Initial raw material investment including tests (wasted production) is estimated to be of $200,000.00. 3.1.2.2 Overheads $300,000.00 will be put aside for initial overheads based on machinery and equipment specifications (e.g. power consumption) and any other unexpected costs.

3.2 Financial Analysis, Time Value of Money & Effect of Inflation

3.2.1 Financial Analysis Southern Cross Engineering Sheet Metal Balance Sheet / Statement of Financial Position As at 30 June 2013 30-Jun-11 30-Jun-12 Assets Non-current assets Property and Plant Machinery Total Non Current Assets Current assets Inventories Cash and Cash Equivalents Prepaid Expenses Total Current Assets Total Assets Liabilities Non Current Liabilities Loan Payable Total Non Current Liabilities Current Liabilities Interest Expense Accounts Payable Accrued Expenses Total Current Liabilities Total Liabilities
Figure 3: Balance Sheet for initial 3 years

30-Jun-13

$4,000,000.00 $0.00 $4,000,000.00

$4,000,000.00 $4,000,000.00 $8,000,000.00

$4,000,000.00 $4,000,000.00 $8,000,000.00

$0.00 $12,000,000.00 $0.00 $12,000,000.00 $16,000,000.00

$0.00 $6,272,000.00 $0.00 $6,272,000.00 $14,272,000.00

$200,000.00 $4,385,376.00 $0.00 $4,585,376.00 $12,585,376.00

$16,000,000.00 $16,000,000.00

$16,000,000.00 $16,000,000.00

$16,000,000.00 $16,000,000.00

$1,728,000.00 $0.00 $0.00 $1,728,000.00 $17,728,000.00

$1,914,624.00 $1,500,000.00 $0.00 $3,414,624.00 $19,414,624.00

$2,121,403.39 $1,500,000.00 $850,000.00 $4,471,403.39 $20,471,403.39

Net Assets (Alfredson, et al., 2009)

-$1,728,000.00

-$5,142,624.00

-$7,886,027.39 22

3.2.2 Time Value of Money & Effect of Inflation Southern Cross Engineering will need to obtain a bank loan of $16,000,000.00 to fund the Sheet Metal Processing Plant. The interest rate on the loan is 10.8% per annum (Australia and New Zealand Banking Group, 2010). Terms agreed upon by the bank will involve payback of the loan only to start when the company is in full production. Thus interest will accumulate on the $16,000,000.00 for the initial construction and preparation period of three years.
End of year 0 1 2 3 Balance Beginning $16,000,000.00 $16,000,000.00 $17,728,000.00 $19,642,624.00 $1,728,000.00 $1,914,624.00 $2,121,403.39 Interest Ending Balance $16,000,000.00 $17,728,000.00 $19,642,624.00 $21,764,027.39

Thus at the end of the third year the balance in the loan account is $21,764,027.39. During the production phase the annual payments are calculated as follows.

P = the Present Value ($21,764,027.39) A = the Annuity amount needed to be generated each year = the interest rate per period N = the period Considering the inflation rate according to the Reserve Bank of Australia is at 3.1% (Reserve Bank of Australia, 2010).The real interest iris given by the fisher Equation:

Thus calculating Annuity:

Thus the time value of money over the whole period is illustrated on Figure 3: 22

Figure 4: Time value of Money

$3.18m $3.18m

$3.18m

$3.18m

$3.18m

$3.18m

$3.18m

$3.18m

$3.18m

$3.18m

10 11 12 13

$16mm m $17.73m $19.64m $21.76m

3.3 NPV, Annual Worth Analysis, Funding, Cost of Capital, and Cost of Debt
3.3.1 NPV and Annual Worth Analysis To calculate profitability of the Sheet Metal Processing plant the difference between the present value of cash inflows and outflows is needed. By the end of the third year Southern Cross Engineering would have accrued interest on their $16,000,000.00 loan totalling a value of $21,764,027.39. In order to meet recover all investments within ten years, the net present value of investments for ten years should be zero. To calculate the value for NPV the following formula is used:

At the tenth year the Net Present Value of the investment is zero, thus Southern Cross Engineering would have reached the breakeven point by the tenth year and will start earning a profit by year 11. This is shown below.

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Table 5: NPV Analysis

NPV Analysis Year 0 1 2 3 4 5 6 7 8 9 10 NPV

Figure 5: Net Present Value

Cash inflow / Outflows -$21,764,027.39 $2,957,310.96 $2,749,124.81 $2,555,594.36 $2,375,687.90 $2,208,446.34 $2,052,978.09 $1,908,454.37 $1,774,104.69 $1,649,212.85 $1,533,113.02 $0.00

Net Present Value at 10 years

$25,000,000.00 $20,000,000.00

$15,000,000.00

$10,000,000.00

$5,000,000.00

$0.00 0 1 2 3 4 5 6 7 8 9 10

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3.3.2 Cost of Capital and cost of debt: Southern Cross Engineering will take out a full $16m loan from day one of the initial set up phase, thus leaving thirteen years in which the loan must be paid off by (3 year for set up and 10 operation). The interest rate is at 10.8% (Australia and New Zealand Banking Group, 2010). As the company does not make any of its own capital investment, the cost of debt is calculated according to the following formula ( ( ) )

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4 Operating for 10 Years

4.1 Pricing and Breakeven Analysis
It is estimated that the following costs are associated with colorbond products and other products that Southern Cross engineering will produce:
Table 6: Average Consume of Colorbond Products per Household

Quantity 65 4 18 55 3 24 65 200 434

Description Colorbond Standard Apron Colorbond Standard Barge Colorbond Valley Colorbond Roll Top Ridge Colorbond Box Gutter Colorbond Cap Flashing Colorbond Cover Flashing Colorbond Corridek Sheeting M2 All Products

Unit Price $12.37 $13.00 $13.73 $13.54 $30.25 $31.05 $13.26 $24.89 $152.09

Revenue per House $804.05 $52.00 $247.14 $744.70 $90.75 $745.20 $861.90 $4,978.00 $8,523.74

Table 7: Cost per each unit sold

Description Colorbond Standard Apron Colorbond Standard Barge Colorbond Valley Colorbond Roll Top Ridge Colorbond Box Gutter Colorbond Cap Flashing Colorbond Cover Flashing Colorbond Corridek Sheeting M2 All Products Gross Profit Margin per House

Unit Cost $9.90 $10.40 $10.98 $10.83 $24.20 $24.84 $10.61 $19.91 $121.67

Total Cost $643.24 $41.60 $197.71 $595.76 $72.60 $596.16 $689.52 $3,982.40 $6,818.99 $1,704.75

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Table 8: Average quaintly per Household

Quantity 5.00 3.00 3.00 11.00

Description Deluxe Profile Frames Single Double Hung Robe Frames All Products

Unit price $140.00 $155.00 $395.93 $690.93

Revenue Per House $700.00 $465.00 $1,187.79 $2,352.79 $1,176.40

Profit (Gross Margin per House)

Table 9: Cost per Unit Sold

Description Deluxe Profile Frames Single Double Hung Robe Frames All Products Gross Profit Margin per House

Unit Cost $112.00 $124.00 $316.74 $552.74

Total Cost $560.00 $372.00 $950.23 $1,882.23 $470.56

For the above products it is estimated that a gross profit margin of $1,646.96 per household will be made. From the above products the following Operational Costs are associated per year for production:
Table 10: Operational Costs

QUANTITY 3.00 2.00 5.00 1.00

DESCRIPTION Engineers Drafters Clerical Insurance Total

UNIT PRICE $150,000.00 $50,000.00 $48,000.00 $1,500,000.00

LINE TOTAL $450,000.00 $100,000.00 $240,000.00 $1,500,000.00 $2,290,000.00

Thus to breakeven in ten years the number of houses that Southern Cross Engineering need to supply is 3200 per year.

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Table 11: Expected Income Statements for 10 years operation

Column1 Year Net Revenue Cost of Goods Sold Total Gross Margin

Column3 1 $34,803,468.33 $27,842,774.66 $6,960,693.67

Column4 2 $34,803,468.33 $27,842,774.66 $6,960,693.67

Column5 3 $34,803,468.33 $27,842,774.66 $6,960,693.67

Column6 4 $34,803,468.33 $27,842,774.66 $6,960,693.67

Column7 5 $34,803,468.33 $27,842,774.66 $6,960,693.67

Column8 6 $34,803,468.33 $27,842,774.66 $6,960,693.67

Column9 7 $34,803,468.33 $27,842,774.66 $6,960,693.67

Column10 8 $34,803,468.33 $27,842,774.66 $6,960,693.67

Column11 9 $34,803,468.33 $27,842,774.66 $6,960,693.67

Column12 10 $34,803,468.33 $27,842,774.66 $6,960,693.67

20.00% EBITDA $4,670,693.67

20.00% $4,670,693.67

20.00% $4,670,693.67

20.00% $4,670,693.67

20.00% $4,670,693.67

20.00% $4,670,693.67

20.00% $4,670,693.67

20.00% $4,670,693.67

20.00% $4,670,693.67

20.00% $4,670,693.67

Depreciation and Amortisation

$508,995.00

$508,995.00

$508,995.00

$508,995.00

$508,995.00

$508,995.00

$508,995.00

$508,995.00

$508,995.00

$508,995.00

EBIT

$4,161,698.67

$4,161,698.67

$4,161,698.67

$4,161,698.67

$4,161,698.67

$4,161,698.67

$4,161,698.67

$4,161,698.67

$4,161,698.67

$4,161,698.67

Provision for Income tax (30%) Interest

$2,913,189.07 $240,921.41

$2,913,189.07 $240,921.41

$2,913,189.07 $240,921.41

$2,913,189.07 $240,921.41

$2,913,189.07 $240,921.41

$2,913,189.07 $240,921.41

$2,913,189.07 $240,921.41

$2,913,189.07 $240,921.41

$2,913,189.07 $240,921.41

$2,913,189.07 $240,921.41

Net Income Net Cashflow

$2,672,267.66 $3,181,262.66 9%

$2,672,267.66 $3,181,262.66 9%

$2,672,267.66 $3,181,262.66 9%

$2,672,267.66 $3,181,262.66 9%

$2,672,267.66 $3,181,262.66 9%

$2,672,267.66 $3,181,262.66 9%

$2,672,267.66 $3,181,262.66 9%

$2,672,267.66 $3,181,262.66 9%

$2,672,267.66 $3,181,262.66 9%

$2,672,267.66 $3,181,262.66 9%

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4.2 Depreciation and Taxes

The estimated total cost of the machine and equipment is $4,000,000.00. They are to be purchased with brand new condition, brief estimation of grouped type of the machine and equipment as below:
Table 11: Description on Depreciable Assets

Assets

Asset Cost

Metal Sheet forming Machines Welding Machines Forklift and Transportations Coating Machines Buildings Total

$2,460,000 $540,000 $380,000 $230,000 $1,505,500

Other Depreciable Cost $250,000 $80,000 $40,000 $20,000 $150,000

Net Assets

Salvage Value $271,000 $62,000 $42,000 $25,000 $165,550 $565,550

$2,710,000 $620,000 $420,000 $250,000 $1,655,500 $5,655,500

Other depreciable cost is the cost used to get the assets ready for their intended use, such as installation, transportation, import duty, sales tax, commissioning, etc. Its estimated useful life of all Assets to be 10 Years and salvage value 10% of the initial investment cost. The method used to calculate depreciating is straight-line method. Refer to table 11 for a detailed analysis on depreciation over the whole operation period. Depreciation expenses = (Initial Cost Salvage Value) / Useful Life (Years) = ($5,655,500 - $565,550 / 10 Years ) = $508,995 p.a Depreciation Rate = 1 / 10Years = 10 % ---- Fix Per annum.

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Table 13: Depreciation of Assets

Book Value
Assets Metal Sheet forming & cutting Machines 2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2,710,000

Welding Machines Forklift and Transportations Coating Machines Buildings Total book Value

2,466,100 2,222,200 1,978,300 1,734,400 1,490,500 1,246,600 1,002,700 564,200 508,400 452,600 396,800 341,000 285,200 229,400 620,000
420,000 250,000

758,800 173,600 117,600 70,000

514,900 271,000 117,800 62,000 79,800 47,500 42,000 25,000

382,200 227,500

344,400 205,000

306,600 182,500

268,800 160,000

231,000 137,500

193,200 115,000

155,400 92,500

1,655,500

5,655,500

1,506,505 1,357,510 1,208,515 1,059,520 910,525 761,530 612,535 463,540 314,545 165,550 5,146,505 4,637,510 4,128,515 3,619,520 3,110,525 2,601,530 2,092,535 1,583,540 1,074,545 565,550

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4.2.1 Land Price in the future The company initially spent the average cost of land in Perth, currently in 2010 is $521 per metre square, with continue increasing rate of price 14% pa (Stafford, 2010). The land size 4,500 m2, which means the cost is 4,500 m2x $521 = $2,344,500. The remaining money spent on building is $1,655,500.
Table 12: Appreciation of land

End of Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13

Interest Earned

Simple Appreciation Rate (14 %) Cumulative Balance Ending 0 328,230 328,230 328,230 328,230 328,230 328,230 328,230 328,230 328,230 328,230 328,230 328,230 328,230

2,344,500 2,672,730 3,000,960 3,329,190 3,657,420 3,985,650 4,313,880 4,642,110 4,970,340 5,298,570 5,626,800 5,955,030 6,283,260 6,611,490

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5 Summary and Conclusions

With the expanding property market and growth in the building industry in WA Southern Cross Engineering definitely have an opportunity to further expand their business. The development of a sheet metal processing plant offering a wide range of unique products which is up to date with current needs of modern designs will definitely hone in on this market gap. It is estimated that the plant could be up and running within three years and would be able to break even in after an operation period of ten years. A loan of $16 million would be needed for initial start-up for purchase of the plant, machinery, hiring of staff etc. The time value of money from the borrowed money indicates that the company would need to pay back $ per annum for the ten year operation period. For the initial period the company would make a loss, however according to the break even analysis, the company would need to supply 3200 average households per annum to break even in ten years. This is a great opportunity for Southern Cross Engineering to further grab a hold of every aspect of the construction industry and become leaders in the market.

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6 References
Alfredson, Keith, et al. 2009.Applying International Financial Reporting Standards. Queensland : John Wiley & Sons Australia Ltd, 2009. Australia and New Zealand Banking Group. 2010. Interest Rates. https://www.anz.com/aus/RateFee/InterestRates/Rates.asp?section=SBS. ANZ. [Online] 23 October 2010. [Cited: 25 October 2010.]

Australian Bereau of Statistics. 2010. 3101.0 - Australian Demographic Statistics, Dec 2009. [Online] 24 June 2010. [Cited: 14 September 2010.] http://www.abs.gov.au/ausstats/abs@.nsf/mf/3101.0. Australian Bureau of Statistics. 2008. Housing Demands Grows Strongley in Regional Western Australia. Australian Bureau of Statistics. [Online] 16 January 2008. [Cited: 14 September 2010.] http://www.abs.gov.au/ausstats/abs@.nsf/mediareleasesbytitle/F6C6D9E7F03C70B1CA2573D1001BC840?OpenDocument. Australian Housing and Urban Research Institute. 2004.Projected Housing Demand in Australia to 2011. [Bulletin] Melbourne : AHURI Ltd, 2004. Eren, Halit. 2010. Fundamentals of Project Management. 310683 Engineering Management 302. 2010. Hutchings, Glen. 2009.Accounting in Practise 2009. Queensland : John Wiley & Sons Australia, Ltd, 2009. Reserve Bank of Australia. 2010. Measures of Consumer Price Inflation. Reserve Bank of Australia. [Online] 25 October 2010. [Cited: 25 October 2010.] http://www.rba.gov.au/inflation/measures-cpi.html. Stafford, Patrick. 2010. http://propertylive.com.au. smartcompany.com.au. [Online] Propertylive, 23 april 2010. [Cited: 26 10 2010.] http://propertylive.com.au/2010/04/23/australia-median-land-price-continue-to-surge-to-a-record-median-price-of-185222/.

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7 Appendix A: Group Operations

The team characterized as a Task Group; working together to complete a task (project proposal), the team was pointed out by the tutor and is composed by three members. The power was decentralised (organic structure) once all members contributed equally and worked together on each aspect of the project. In the first phase of the project the team meetings were conducted weekly having the average duration of two hours and were recorded and goals were achieved according to the proposed schedule. During the second phase the team meetings were more frequent; approximately twice a week for a period of about 3 hours. As mentioned before most tasks were performed in an organic structure and ideas were brainstormed to produce the final outcome. Informal communication was the most common and some formal communication as e-mails were also adopted as the extensive use of text messages. Skype conferences were also used to communicate and ask advice when a meeting was not possible. All team members contributed equally towards the tasks to be completed and all members were present on all meetings.

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8 Appendix B: My Role in the Group

8.1 Yuri Montemurro
On the first phase of the project my contribution to the group was to help to implement a project selection criteria based on a point system, I was also responsible for the cost estimates and cost drivers. During phase 2 my largest contribution was related to operating costs a nd pricing, Ive also contributed with some text editing and some group meeting management (communication). We as a team worked on a organic structure so many other areas of the project were synthetised as a group which means that Ive contributed to other tasks as I was also helped by my team.

8.2 HendiRofiansyah
To be in the this great team was a gift for me, my personal effort was to ensure the group not missing any of the assignment needed, special effort I made on generating project background, environmental issue, contract, depreciation and taxes, and finding the salvage value of equipment. As a mature student and having industrial experience previously, I share experience to the team and it works well, all the steps on the assignment were made together. me and so others always attend for meeting to enhance our brainstorming with the objective completing the assignment.

8.3 Devon Hindshaw

The proactive nature of this group was something I have not experienced at Curtin thus far. We frequently had meetings brainstorming and discussing problems and even after delegating tasks we worked together and coincided with our ideas. Having studied a few accounting and management units through Curtin Business School, I was able to apply my existing knowledge as well as use any thing I learnt from lectures. I was responsible for the gantt chart and with help from Yuri and Hendi I contributed to the Project Costs and Financial Issues. I also completed the balance sheets and income statements for the project. We all worked together in the final presentation and putting together of everyones work. Th is project helped me understand the need for evaluating every aspect of a new project from feasibility to financial issues, it also helped me develop skills in Microsoft Project and helped me gain an appreciation to how essential effective time management can be. Being a management unit I definitely feel like my fellow group members and I practised what we preached in terms of our project management skills and communication skills.

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