Introduction
An institution needs to be reliable and do its job well. The success of wood companies depends on having people, tools, and a market for their goods. As technology has improved, businesses have used new ways to handle information. It was possible to do this by putting in new machinery. A company with better technology will be able to make better things. When companies use old machines and tools, the costs of doing so have gone up because the old machines are slow and often break down, making them unstable. Enchanting Business is a company that is going to improve efficiency and cut costs by adding new machines and tools to its processing center.
Net Present Value (NPV) Analysis
NPV analysis shows the difference between what the income and costs have been worth over time. If a business has a positive return on investment (NPV), it is said to be sustainable. Following a careful examination of both handsets’ cases, it is now suggested that the cutting-edge lumber mill machine be bought. NPV is used to figure out this cost because the magic wood case only shows losses. In both cases, the bigger machine’s NPV means that it costs more. Because of this, it is possible to think that Magic Rafters could learn how to do something simple.
There are, however, many numeric and qualitative factors that affect cash flow, so the choice should not be based only on NPV formulas. Moreover, the tools, on the other hand, had 40% more power. It was also easy for a trained maker to get custom-made items, which would help them make more money because custom work is more valuable than a specific item. In order to get the most out of the extra power, Magic Timbers should ask customers to find out exactly what they want from new goods and designs. In accordance with the need to build cutting-edge buildings that will draw clients, Magic Wood is told to hire custom architects.
When it comes to the old equipment, however, a big investment is needed because it will cost $63,000. This is broken down into $28,000 for emergency maintenance, $7,000 every five years, and a more thorough coding process the subsequent year that could cost approximately four thousand dollars. The worth would drop by $6,000 a year. After five years, it would be seen as useless and sold at sale for $5,000.
Qualitative Analysis
The very first option is to rebuild the old assembly machine for the Matrix, which is no longer useful. In addition to a yearly fee of $7,000 for the building and replacement account, this machine needs much upkeep to keep it running at its best. It would cost more to make and put workers at greater risk of getting hurt because the machine is easily damaged by wood production and could back off if workers did not put wood where it was supposed to go. Another problem with old machines is that they can make less stuff. Many people at Magic Timber and Steel were worried about how they would be able to meet the needs of wood with this less effective method.
As an extra choice, the old machine could be switched out for a new Delta device. Magic Timber and Steel could get a loan to buy this new wood-making machine. After five years, they would have to pay back the loan with 6% interest on the initial amount. Thanks to advances in technology, the new wood production machine could improve Magic Wood and Steel’s output capacity. This would make the system make expensive goods, which would lower production costs. If Magic Timer and Steel refrain from purchasing this new machine, they will get an edge over their competitors by making more money, cutting costs, and reducing risks of severe harm.
Quantitative Analysis
New Machine (Delta)
The volume will go up by 40% thanks to this modern machine. It looked like Magic was needed. Because of the ongoing problem with oil production or customer loss, the company might not be able to use the new skills fully. Despite this, it can be changed in some ways.
$145,000 is how much new equipment costs.
For five years, the straight-line method says that depreciation is $70,000 ($145,000 times 5).
The planning process is the same as last year’s. The seller offered a set fee of $2,000, which went up by $1,000 every year until it reached $20,000 ($2,000 plus $6,000 plus $4,000 plus $3,000 plus $5,000).
Magic’s banker suggested a 6%-a-year mortgage with interest payments spread out over five years and full capital repayment at the end of the term. This would help them pay for the buy even more.
(8400 dollars a year) When you multiply $8,400 by 5, you get $42,000.
On the due date, you must pay back the $145,000 loan.
After five years, Magic will sell the Delta for $60,000.
Old Machine (Matrix)
Full payment = $28,000
It will cost $7,000 to keep this up ($7,000 x 5 = $35,000).
Step 3: If the event is planned more usually, the tools may cost an extra $4,000. Because of this, Magic cannot buy new gear; instead, they have to replace old ones. When the Business grew from 2002 to 2004, it already had a great name and many customers. As the government’s cash flow kept getting better, they bought used tools. Businesses were having a hard time and could not afford capital tools, so they had to do the same thing. The office environment was happy. Even so, Magic has a limited supply because of the company’s ongoing slump and rivals like Woolworths. This means that a 40% growth capacity would not be needed. Much money has been spent by the company to market and sell pricey laser-cutting tools. This same Business does not want to buy capital tools because it needs more money.
Sensitivity Analysis
Through sensitivity analysis, the study looks at what happens when interest rates change, focused on NPV, leftover value, and lower price payback time. Changes in the rate of return have a good effect on production value systems. They increase fixed efficiency gains by $138.67 and cut the time it takes to pay back the loan from 3.36 years to 3.34 years. Campaign management, general rate, and yearly rate of return all stay at 15%, no matter what the number is. This means that buying a tool is a smart move.
On the other hand, reducing Delta’s price to $80,000 establishes the new gadget as Davidson’s favored choice. Carrier’s expenses amount to $253,943.67, but Matrix’s expenditures are $289,093.62. An amount of $35,149.95 saved in 2021 leads to a repayment time of only 2.99 years, much less than 3.36 decades.
Delta’s current investment and Business are $255,230.46, which is $33,863.16 less than the old machine, based on a $1,000 starting price in Year 1. Savings of $7,589.35 per year are expected because of low capital costs in the first four years. Matrix’s running costs in 2021 were $41,213.74, while Delta’s were $57,297.97. This is because Delta has to pay back the loan capital, which takes 3.1 years.
With a 10% discount rate, machinery is the best choice for Davidson because it saves him $37,556.33. The technology lowers overhead costs, so in 2021, it will break even, even though it costs a lot to fix every year and a lot to buy in the third year. With an internal investment return of 23% and a yearly investment return of 25%, buying a new machine is the best choice, with a payback time of 2.8 years.
Recommendations
We found that after rating both options using the decision criteria matrix, option two is the best one for Magic Timber and Steel to move forward with because it solves all of their major problems (Rathbone & Van Rooyen, 2020). Option 2 has a negative net present value (NPV), but it solves all four of an organization’s main problems. Negative net present value does not include things like estimates of how much a new machine will make, predictions of how much it will sell in the future, and so on. It includes the cost of buying wood goods that are made with new technology and do not cost too much. David should get a new lumber mill finishing after I look into the problem. It will cost $63,000 to service certain pieces of equipment. That amount will be split into three parts: $28,000 for emergency repairs, $7,000 every five years, and $4,000 for more thorough planned work in the third year. It is not a good idea to spend much money on a gadget that does not bring in more sales. After that, it would lose $6,000 a year in value, and after five years, it would be thrown away and sold for $5,000.
To make sure workers are safe, I strongly urge him to take steps to teach every worker how to use the machine correctly. He should go to training classes with a strong company once a week, twice a month, or once a month to learn how to use the right tools. Because of these things, David should start health and safety projects for all of his workers. If he puts both of these things first, the company will have legal problems, such as permit problems, and will have to shut down. Getting this new machine is a good idea for his Business’s future growth and success.
Conclusion
On the whole, it is suggested that Davidson buy a lumber mill fixer because using the same equipment will cost much money and need $7,000 a year in repairs. The new tools, on the other hand, could handle 40% more work and would only speed up some personalized jobs. This would increase sales because customized items bring in more money than standard items. Lastly, buying more gear is a smart way to keep up with changes in technology and place the product by meeting needs that are starting to become clear.
References
Bean, G. J., & Bowen, N. K. (2021). Item response theory and confirmatory factor analysis: complementary approaches for scale development. Journal of Evidence-Based Social Work, 18(6), 597-618.https://www.tandfonline.com/doi/abs/10.1080/26408066.2021.1906813
Rathbone, M., & Van Rooyen, S. (2020). Financial management and phenomenology: The role of dialogue, accountability and context in investment decisions. TD: The Journal for Transdisciplinary Research in Southern Africa, 17(1), 1–9.https://journals.co.za/doi/abs/10.4102/td.v17i1.894
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