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In-sourcing Analysis
Angela Marie K 225246
Sharwin Navaratnam 234514
Devi Tri K 228744
Rafidha Amira M 225008
Option #3 Calculation
Option #3
Manufacture own PCB by building new
plant/facility
Require large capital
Start-up expenses are listed on next slide
If go on with this project, transition from
outsource to insource will take place (buy +
produce in-house), and completely finish by
end of 2005
Offer better A/P payment terms (120 days
instead of 30 days)
Site prep. & construction 3,030,000
Furnishing & non-manuf. equip 126,000
Comm & IT infrastructure 210,000
Equipment 2,643,258
6,009,258
Manuf. cost
1,712,087 7,847,541 9,553,863 10,498,507 11,706,178 13,650,762
Depreciation
50,500 590,608 590,608 590,608 478,608 478,608 478,608
Total
expenses 328,500 12,540,613 12,237,814 10,144,471 10,977,115 12,184,786 14,129,370
After Tax
(36%) 210,240 8,025,993 7,832,201 6,492,462 7,025,354 7,798,263 9,042,797
Depreciation
(add back) 50,500 590,608 590,608 590,608 478,608 478,608 478,608
Change in A.
Payable - - 9,952 281,952 232,137 204,827 345,475
(6,009,258) 835,292
(7,383,421)
(6,168,998)
CF without the project
2003 2004 2005 2006 2007 2008 2009
PCB purchase
10,237,918 10,237,918 11,773,605 14,363,798 16,518,368 20,152,409
Tax (36%)
3,685,650 3,685,650 4,238,498 5,170,967 5,946,612 7,254,867
A. Payable
Change - - 126,221 212,892 177,088 298,688
Less:
Salvage
value A. 1,656,362
Payable
2003 : (6,168,998)
2004 : (883,117)
2005: (679,373)
2006: 1,788,985
2007: 2,665,330
2008: 3,279,840
2009: 6,871,794
NPV
Using 15% discount rate
883,117
(6,168,998)+ 1.15 + + +
NPV = $148,905
IRR
Is interest rate that makes NPV equal to
zero.
Rate NPV
14 % 480,127
IRR 0
16 % (113,813)
IRR = 14% +
IRR = 15.627%
Payback period
Year Cash inflow Cummulative cash
in.
0 (2003) (6,168,998)
1 (510,567) (6,679,565)
2 (679,373) (7,358,938)
3 1,788,985 (5,569,953)
4 2,665,330 (2,904,623)
5 3,279,840 375,216
6 6,871,794 7,247,011
We can payback at year 6, so we stop at year 5