tailieunhanh - Lecture Purchasing and supply chain management (3/e): Chapter 16 - W. C. Benton

Chapter 16 - Equipment acquisition and disposal. In chapter 16 a step-by-step capital acquisition process is given. The steps are based on requisition, company objectives, new product ideas, cash flow analysis, an economic evaluation, a financial plan analysis, and expenditure control. | 1 Chapter 16: Equipment Acquisition and Disposal Purchasing and Supply Chain Management 3rd edition, Copyright 2013 W. C. Benton Jr., All rights reserved Capital Equipment Acquisition The acquisition of capital equipment is a major decision in most firms. Made at a vice president level and above Involve an expert equipment buyer Industry specific Significant long term expectation of returns 2 The Processes Department Requisition A department requests equipment replacements and expansions Involves the plant manager or the executive in charge of the department Company Goals And Objectives To compare the acquisition request with the overall long-run objectives of the firm ., maximize profitability 3 The Processes (cont.) New Project Ideas Capital projects categories: Replacements Increase quality, reduce operating expense, and provide more efficiency Expansion (new products) Expand into a newly introduced product line Expansion (existing products) An alternative to replacing the . | 1 Chapter 16: Equipment Acquisition and Disposal Purchasing and Supply Chain Management 3rd edition, Copyright 2013 W. C. Benton Jr., All rights reserved Capital Equipment Acquisition The acquisition of capital equipment is a major decision in most firms. Made at a vice president level and above Involve an expert equipment buyer Industry specific Significant long term expectation of returns 2 The Processes Department Requisition A department requests equipment replacements and expansions Involves the plant manager or the executive in charge of the department Company Goals And Objectives To compare the acquisition request with the overall long-run objectives of the firm ., maximize profitability 3 The Processes (cont.) New Project Ideas Capital projects categories: Replacements Increase quality, reduce operating expense, and provide more efficiency Expansion (new products) Expand into a newly introduced product line Expansion (existing products) An alternative to replacing the current equipment Other (heating system for plant) Other (new construction) Other (renovation) 4 The Processes (cont.) Cash-Flow Analysis Evaluate after-tax cash inflows and outflows of each capital project alternative Evaluation criteria: The net cash investment The net cash flow The economic life of the project Life cycle costing An evaluation method used to evaluate alternative capital acquisitions Based on the total cost of the equipment over the expected life of the product 5 The Processes (cont.) Economic Evaluation Formal process of evaluating capital equipment or projects 5 common evaluation methods for individual projects: Payback Average rate of return Net present value Internal rate of return Profitability index 6 Comparison of Evaluation Methods 7 Method Good Features Bad Features Payback Easily understood Easy to calculate Provides a crude risk screen Ignores the time value of pre-payback cash flows Ignores past-payback cash flows ARR Easily understood Easy to calculate .