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Economic Feasibility Workbook

Created by:
Date Created: November 22, 2018
Purpose: The Economic Feasiblity Workbook tracks the benefits and costs associated
with Piedmont's new custom order tracking system.
Worksheets: Documentation Documents the workbook.
Economic Feasibility Summary Summarizes the economic feasibility for the project.
One-Time Costs Identifies the one-time costs and their approximate dollar values.
Recurring Costs Identifies the recurring costs and their approximate dollar values.
Recurring Benefits Identifies the recurring benefits and their approximate dollar values.
Piedmont Trailer Manufacturing Company
Custom Order Tracking Project
Economic Feasibility Summary
November 22, 2018
Discount Rate 0.14
Year
0 1 2 3 4 5
Benefits
Recurring Value of Benefits $0 $434,000.00 $434,000.00 $434,000.00 $434,000.00 $434,000.00
Present Value Factor 1.000000 0.877193 0.769468 0.674972 0.592080 0.519369
Present Value of Benefits $0 $380,702 $333,949 $292,938 $256,963 $225,406
Net Present Value of All Benefits $0 $380,701.75 $714,650.66 $1,007,588.30 $1,264,551.14 $1,489,957.14

Costs
One-Time Costs (370,703.00)
Recurring Costs (318,000.00) (318,000.00) (318,000.00) (318,000.00) (318,000.00)
Present Value Factor 1.000000 0.877193 0.769468 0.674972 0.592080 0.519369
Present Value of the Recurring Costs (278,947.37) (244,690.67) (214,640.94) (188,281.53) (165,159.24)
Net Present Value of All Costs (370,703.00) (649,650.37) (894,341.04) (1,108,981.98) (1,297,263.51) (1,462,422.75)

Overall Net Present Value $370,703.00 $268,948.61 $179,690.38 $101,393.68 $32,712.37 $27,534.39

Cash Flow Analysis


Yearly NPV Cash Flow (370,703.00) 101,754.39 89,258.23 78,296.70 68,681.31 60,246.77
Overall NPV Cash Flow (370,703.00) (268,948.61) (179,690.38) (101,393.68) (32,712.37) 27,534.39

IRR: (370,703.00) 116,000.00 116,000.00 116,000.00 116,000.00 116,000.00

Break-even Occurs Between: years between 4 and 5


Break-even Fraction: 0.542973
Actual Break-even Occurs: 4.542973
Totals

$1,489,957.14

(1,462,422.75)

$27,534.39

0.5429730981

17.049417%
Solution 1:
Year
Cash Flow Analysis 0 1 2 3
3 years: Yearly NPV Cash Flow -370703 101754.4 89258.23 78296.7
Overall NPV Cash Flow -370703 -268949 -179690 -101394

As we can see, we are not able to achieve break even in 3 years as the overall
cashflow is still negative at the end of 3rd year

Year

Cash Flow Analysis 0 1 2 3 4 5


6 years: Yearly NPV Cash Flow -370703 101754.4 89258.23 78296.7 68681.31 60246.77
Overall NPV Cash Flow -370703 -268949 -179690 -101394 -32712.37 27534.39

It is clear that we have already achieved the break even well before 6th year, precisely at 4.54 years, hence
project is feasible
Solution 3:
Recurring Costs

Cost Approximate Dollar Value


Software Maintenance ($55,000.00)
Hardware ($30,000.00)
Supplies ($35,000.00)
IT Positions (3 people) ($160,000.00)
Electricity ($20,000.00)
Internet and Telephone ($10,000.00)
Security Personnel(2 people) ($50,000.00)
Site Rental ($38,000.00)
Total Recurring Costs ($398,000.00)

Cash Flow Analysis


Yearly NPV Cash Flow -375703 31578.95
Overall NPV Cash Flow -375703 -344124

IRR: -20.398%

After making the changes i.e after adding one one-time cost and three recurring costs we have got the
break even till 5th year and also IRR in this case is less compared to discount rate hence we can commen
our client to not account these costs for keeping the project feasible.
Solution 3:
One time cost

Cost Approximate Dollar Value


Development Personnel (142,000.00)
Training (45,000.00)
Project-Related Technology Pu (65,000.00)
Site Preparation (105,250.00)
Miscellaneous
Conference-Related (7,500.00)
Transportation (5,000.00)
Supplies (2,704.00)
Duplication (3,249.00)
Total One-Time Costs (375,703.00)

27700.8310249308 24298.9745832726 21314.88999 18697.27


-316423.221606648 -292124.247023376 -270809.357 -252112

cost and three recurring costs we have got the above overall cash flow which shows that we have not attained the
mpared to discount rate hence we can comment that the project will no longer be feasible and hence we can recommend
Solution 1:

Break-even Occurs Between: years between 3 and 4


discount = 8% Break-even Fraction: 0.8416236805
Actual Break-even Occurs: 3.8416236805

Break-even Occurs Between: years between 4 and 5


discount = 10% Break-even Fraction: 0.0416317977
Actual Break-even Occurs: 4.0416317977

Break-even Occurs Between: years between 4 and 5


discount = 12% Break-even Fraction: 0.2790953037 $1,600,000.00
Actual Break-even Occurs: 4.2790953037
$1,400,000.00
Break-even Occurs Between: years between 4 and 5
discount = 14% Break-even Fraction: 0.5429730981 $1,200,000.00
Actual Break-even Occurs: 4.5429730981
$1,000,000.00

Break-even Occurs Between: years between 4 and 5 $800,000.00


discount = 16% Break-even Fraction: 0.8349590667
Actual Break-even Occurs: 4.8349590667 $600,000.00

$400,000.00

$200,000.00

$0.00
$0.00 $1.00 $2

Solution 3:
As long as the IRR is greater than or equal to disount rate, project will be feasilble

Solution 5:

Break-even Occurs Between: years between 3 and 4


Break-even Fraction: 0.4627937815
Actual Break-even Occurs: 3.4627937815

As far as feasiblity part is concerned we can easily see that break even improves, provided we have also red
Solution 2:

Breakeven Analysis

Years 0 1 2 3 4 5
Net Present Value of All Benefits 0 380701.8 714650.7 1007588 1264551 1489957
Net Present Value of All Costs 370703 649650.4 894341 1108982 1297264 1462423

$1,600,000.00

$1,400,000.00

$1,200,000.00

$1,000,000.00

$800,000.00

$600,000.00

$400,000.00

$200,000.00

$0.00
$0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00

Solution 4:

Break-even Occurs Between: years between 3 and 4


Break-even Fraction: 0.295035
Actual Break-even Occurs: 3.295035

After reducing recurring cost by $32500, we can deduce that break even improves

ak even improves, provided we have also reduced recurring cost by $32,500


Piedmont Trailer Manufacturing Company
Custom Order Tracking Project
One-Time Costs
November 22, 2018
Cost Approximate Dollar Value
Development Personnel (142,000.00)
Training (45,000.00)
Project-Related Technology Purchases (65,000.00)
Site Preparation (105,250.00)
Miscellaneous
Conference-Related (7,500.00)
Supplies (2,704.00) Transpo(5,000.00)
Duplication (3,249.00)
Total One-Time Costs (370,703.00)
Piedmont Trailer Manufacturing Company
Custom Order Tracking Project
Recurring Costs
November 22, 2018
Cost Approximate Dollar Value
Software Maintenance ($55,000.00)
Hardware ($30,000.00)
Supplies ($35,000.00)
IT Positions (3 people) ($160,000.00)
Site Rental ($38,000.00) Electricity ###
Total Recurring Costs ($318,000.00)

318000
Piedmont Trailer Manufacturing Company
Custom Order Tracking Project
Recurring Benefits
November 22, 2018
Benefit Approximate Dollar Value
Storage Savings $30,000.00
Staff Reduction (2 people) $45,000.00
Reduced Order Rework $14,000.00
Increased Sales $100,000.00
Faster Order Processing $40,000.00
Better Data Management $125,000.00
Streamline Activities $80,000.00
Total Recurring Benefits $434,000.00
Piedmont Trailer Manufacturing Company
Custom Order Tracking Project
Breakeven Analysis
November 22, 2018
Years
0.00 1.00 2.00 3.00 4.00 5.00
Net Present Value of All Benefits $0.00 $380,701.75 $714,650.66 $1,007,588.30 $1,264,551.14 $1,489,957.14
Net Present Value of All Costs 370,703.00 649,650.37 894,341.04 1,108,981.98 1,297,263.51 1,462,422.75

$1,600,000.00

$1,400,000.00

$1,200,000.00

$1,000,000.00

$800,000.00

$600,000.00

$400,000.00

$200,000.00

$0.00
$0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00
NAMES and ROLL Nos:
CASE SCENERIO

PROBLEM STATEMENT

OBJECTIVES (REQUIREMENTS)

INFORMATION AVAILABLE

CLIENT'S SPECIFIC REQUIREMENTS

WHAT FEATURES OF EXCEL DID YOU USE


AND WHY?
DESCRIBE YOUR SOLUTION AND ITS
BENEFITS TO CLIENT

Identify atleast 3 additional benefits


from the project. Estimate their values
and include these values in your
analysis. What impact do these new
benefits have on your economic
feasibility?
AMES and ROLL Nos:
Quality trailers and excellent customer
services are the primary reasons why the
Piedmont Trailer Manufacturing Company is
the Nations's largest manufacturer of std.
and custom built trailers. The customer
order is on high rise and often it takes three
months before a custom order is released to
production. Thus management thas decided
that that the custom ordering processing is
inefficient, time cosuming and costly.

In an effort to improve the custom order


tracking process, we have been assigned the
task of developing a custom order tracking
system.

Mr. Pablo needs the answer to all the


questions solutions of which are there in the
"Solution" Sheet.

We are given early recurring benefits, one


time costs, yearly recurring costs

1. To construct economic feasibility


workbook.
2. To summarize and analyze the benefits
and cost associated with the proposed
custom order tracking.

1. Cell referencing

2. Basic Arithmetic functions (+,*,-,/)


3. Scattered chart with straight line

Refer to the sheet named :

a) Solutions
b) Test Your Design Solutions

Refer to the solution no. 3 of sheet named


"Test your Design Solutions"
Piedmont Trailer Manufacturing Company
Custom Order Tracking Project
Economic Feasibility Summary
November 22, 2018
Discount Rate 0.20
Year
0 1 2 3 4 5
Benefits
Recurring Value of Benefits $0 $434,000.00 $434,000.00 $434,000.00 $434,000.00 $434,000.00
Present Value Factor 1.000000 0.833333 0.694444 0.578704 0.482253 0.401878
Present Value of Benefits $0 $361,667 $301,389 $251,157 $209,298 $174,415
Net Present Value of All Benefits $0 $361,666.67 $663,055.56 $914,212.96 $1,123,510.80 $1,297,925.67

Costs
One-Time Costs (370,703.00)
Recurring Costs (318,000.00) (318,000.00) (318,000.00) (318,000.00) (318,000.00)
Present Value Factor 1.000000 0.833333 0.694444 0.578704 0.482253 0.401878
Present Value of the Recurring Costs (265,000.00) (220,833.33) (184,027.78) (153,356.48) (127,797.07)
Net Present Value of All Costs (370,703.00) (635,703.00) (856,536.33) (1,040,564.11) (1,193,920.59) (1,321,717.66)

Overall Net Present Value $370,703.00 $274,036.33 $193,480.78 $126,351.15 $70,409.79 $23,791.99

Cash Flow Analysis


Yearly NPV Cash Flow (370,703.00) 96,666.67 80,555.56 67,129.63 55,941.36 46,617.80
Overall NPV Cash Flow (370,703.00) (274,036.33) (193,480.78) (126,351.15) (70,409.79) (23,791.99)

IRR: (370,703.00) 116,000.00 116,000.00 116,000.00 116,000.00 116,000.00

Break-even Occurs Between: years between 4 and 5


Break-even Fraction: 1.510363
Actual Break-even Occurs: 5.510363
Totals

$1,297,925.67

(1,321,717.66)

($23,791.99)

1.5103628359

17.049417%
Piedmont Trailer Manufacturing Company
Custom Order Tracking Project
Economic Feasibility Summary
November 22, 2018
Discount Rate 0.14
Year
0 1 2 3 4 5
Benefits
Recurring Value of Benefits $0 $434,000.00 $434,000.00 $434,000.00 $434,000.00 $434,000.00
Present Value Factor 1.000000 0.877193 0.769468 0.674972 0.592080 0.519369
Present Value of Benefits $0 $380,702 $333,949 $292,938 $256,963 $225,406
Net Present Value of All Benefits $0 $380,701.75 $714,650.66 $1,007,588.30 $1,264,551.14 $1,489,957.14

Costs
One-Time Costs (370,703.00)
Recurring Costs (318,000.00) (318,000.00) (318,000.00) (318,000.00) (318,000.00)
Present Value Factor 1.000000 0.877193 0.769468 0.674972 0.592080 0.519369
Present Value of the Recurring Costs (278,947.37) (244,690.67) (214,640.94) (188,281.53) (165,159.24)
Net Present Value of All Costs (370,703.00) (649,650.37) (894,341.04) (1,108,981.98) (1,297,263.51) (1,462,422.75)

Overall Net Present Value $370,703.00 $268,948.61 $179,690.38 $101,393.68 $32,712.37 $27,534.39

Cash Flow Analysis


Yearly NPV Cash Flow (370,703.00) 101,754.39 89,258.23 78,296.70 68,681.31 60,246.77
Overall NPV Cash Flow (370,703.00) (268,948.61) (179,690.38) (101,393.68) (32,712.37) 27,534.39

IRR: (370,703.00) 116,000.00 116,000.00 116,000.00 116,000.00 116,000.00

Break-even Occurs Between: years between 4 and 5


Break-even Fraction: 0.542973
Actual Break-even Occurs: 4.542973
Totals

$1,489,957.14

(1,462,422.75)

$27,534.39

0.5429730981

17.049417%