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Cost Analysis for Automation

The document projects the costs and cash flows of transitioning from a manual to an automatic production process in Mexico between 2008-2018. Key details include: - Operating costs are projected to decrease with the automatic equipment, saving over $700,000 in the first year. - After taxes, the net present value of the cash flows in pesos is estimated at nearly $1.5 million using a 12.19% discount rate. - Converting to euros at current exchange rates, the net present value is estimated at around €92,495 using an 8% discount rate. - A loan is required to fund the $3.3 million capital expenditure for the new equipment; the projected cash

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Cesar Camey
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860 views4 pages

Cost Analysis for Automation

The document projects the costs and cash flows of transitioning from a manual to an automatic production process in Mexico between 2008-2018. Key details include: - Operating costs are projected to decrease with the automatic equipment, saving over $700,000 in the first year. - After taxes, the net present value of the cash flows in pesos is estimated at nearly $1.5 million using a 12.19% discount rate. - Converting to euros at current exchange rates, the net present value is estimated at around €92,495 using an 8% discount rate. - A loan is required to fund the $3.3 million capital expenditure for the new equipment; the projected cash

Uploaded by

Cesar Camey
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Inflatio Mexico 7%

Tax rate 35%

2008 2009 2010 2011 2012


Projected Operating Costs, Manual Process
Unit volume (000s) 496 546 600 660
Materials 564,816 664,788 782,456 920,951
Direct Labor 1,115,184 1,312,572 1,544,897 1,818,343
Overhead 1,680,000 1,797,600 1,923,432 2,058,072
Total 3,360,000 3,774,960 4,250,785 4,797,366
Materials/unit 1.1387 1.2185 1.3037 1.395
Direct labor/unit 2.2484 2.4057 2.5741 2.7543

Projected Operating Costs, New Automatic Equipment


Unit volume (000s) 496 546 600 660
Materials 542,223 638,197 751,158 884,113
Direct Labor 524,136 616,909 726,101 854,621
Overhead 1,566,211 1,675,846 1,793,155 1,918,676
Total 2,632,570 2,930,952 3,270,414 3,657,410
Materials/unit 1.0932 1.1697 1.2516 1.3392
Direct labor/ unit 1.0567 1.1307 1.2098 1.2945

Cash Flow (MXN)


(+) Cost Savings 727,430 844,008 980,371 1,139,956
(-) Tax on savings 254,601 295,403 343,130 398,985
(+) Sell old machine 175,000
Book Value old mach 250,000
Booked loss on asset sale 75,000
(-) Loss f depreciation of old machine (29,167) (29,167) (29,167)
(+) Tax shield from write off 26,250
(-) Purchase new mach 3,500,000
Depreciation 350,000 350,000 350,000 350,000
(+) Tax shield from dep. 122,500 122,500 122,500 122,500
(+) Savage value
Total Cash flow (3,298,750) 566,163 641,938 730,574 863,471
NPV @ Pesos @12.19% 1,478,997
a) Convert in Euros @15.99MXN/E 92,495

Wacc in Euros 8.00%


Wacc in pesos 12.19% With Fisher effect adjusment

Euros CF's -$206,301 $34,084 $37,201 $40,755 $46,367


b) NPV in Euros @8% $92,495
NPV in pesos $1,478,997

Inflation Mexico 7% 7% 7% 7% 7%
Inflation Euro 3% 3% 3% 3% 3%
PPP MXN/Euro $15.99 $16.61 $17.26 $17.93 $18.62

Gov rate I rate Mexico 9.12% 9.12% 9.12% 9.12% 9.12%


Gov rate I rate France 4.81% 4.81% 4.81% 4.81% 4.81%
I Rat MXN/Euro $15.99 $16.65 $17.33 $18.04 $18.79

ExperMXN/Euro $15.99 $20.00 $20.00 $20.00 $25.00

c) Adjust by inflation
(3,298,750) 566,162 621,430 683,820 783,440
NPV in pesos 869,715

Loan
Capex 3,298,750
Sedn to france 869,715 Max int rate
4,168,465 12.19%

Balance 4,168,465 4,168,465 4,110,613 3,990,438 3,793,219


Interest 508,310 501,255 486,601 462,552
Principal 57,852 120,175 197,219 320,888
Balance 4,168,465 4,110,613 3,990,438 3,793,219 3,472,331
2013 2014 2015 2016 2017 2018 CAGR

660 660 660 660 660 660


985,417 1,054,396 1,128,204 1,207,178 1,291,681 1,382,099
1,945,627 2,081,821 2,227,549 2,383,477 2,550,321 2,728,843
2,202,137 2,356,287 2,521,227 2,697,713 2,886,553 3,088,611
5,133,181 5,492,504 5,876,980 6,288,368 6,728,555 7,199,553
1.4927 1.5971 1.7089 1.8286 1.9566 2.0935
2.9471 3.1534 3.3742 3.6104 3.8631 4.1335

660 660 660 660 660 660


946,001 1,012,221 1,083,076 1,158,891 1,240,014 1,326,815
914,445 978,456 1,046,948 1,120,234 1,198,651 1,282,556
2,052,983 2,196,692 2,350,460 2,514,993 2,691,042 2,879,415
3,913,429 4,187,369 4,480,484 4,794,118 5,129,707 5,488,786
1.433 1.5333 1.6406 1.7554 1.8783 2.0098
1.3852 1.4821 1.5859 1.6969 1.8157 1.9427

1,219,752 1,305,135 1,396,496 1,494,250 1,598,848 1,710,767 10.0%


426,913 456,797 488,774 522,988 559,597 598,768

350,000 350,000 350,000 350,000 350,000


350,000
122,500 122,500 122,500 122,500 122,500
122,500
0
915,339 970,838 1,030,222 1,093,763 1,161,751 1,234,499

$47,315 $48,308 $49,347 $50,432 $51,564 $52,744


7% 7% 7% 7% 7% 7%
3% 3% 3% 3% 3% 3%
$19.35 $20.10 $20.88 $21.69 $22.53 $23.41

9.12% 9.12% 9.12% 9.12% 9.12% 9.12%


4.81% 4.81% 4.81% 4.81% 4.81% 4.81%
$19.56 $20.36 $21.20 $22.07 $22.98 $23.93

$25.00 $25.00 $25.00 $25.00 $25.00 $25.00

915,339 970,838 1,030,222 866,394 888,710 911,697

3,472,331 2,980,414 2,373,014 1,632,161 964,795 193,734


423,422 363,437 289,369 199,029 117,649 23,624
491,917 607,401 740,853 667,365 771,061 888,073
2,980,414 2,373,014 1,632,161 964,795 193,734 (694,339)

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