Quản trị kinh doanh - Chapter 16: Equipment acquisition and disposal

1Chapter 16:Equipment Acquisitionand DisposalPurchasing and Supply Chain Management 3rd edition, Copyright 2013 W. C. Benton Jr., All rights reservedCapital Equipment AcquisitionThe acquisition of capital equipment is a major decision in most firms.Made at a vice president level and aboveInvolve an expert equipment buyerIndustry specificSignificant long term expectation of returns2The ProcessesDepartment RequisitionA department requests equipment replacements and expansionsInvolves the plant manager or the executive in charge of the departmentCompany Goals And Objectives To compare the acquisition request with the overall long-run objectives of the firme.g., maximize profitability3The Processes (cont.)New Project IdeasCapital projects categories:ReplacementsIncrease quality, reduce operating expense, and provide more efficiencyExpansion (new products)Expand into a newly introduced product lineExpansion (existing products)An alternative to replacing the current equipmentOther (heating system for plant)Other (new construction)Other (renovation)4The Processes (cont.)Cash-Flow AnalysisEvaluate after-tax cash inflows and outflows of each capital project alternativeEvaluation criteria:The net cash investmentThe net cash flowThe economic life of the projectLife cycle costingAn evaluation method used to evaluate alternative capital acquisitionsBased on the total cost of the equipment over the expected life of the product5The Processes (cont.)Economic EvaluationFormal process of evaluating capital equipment or projects5 common evaluation methods for individual projects:PaybackAverage rate of returnNet present valueInternal rate of returnProfitability index6Comparison of Evaluation Methods 7MethodGood FeaturesBad FeaturesPaybackEasily understood Easy to calculate Provides a crude risk screenIgnores the time value of pre-payback cash flowsIgnores past-payback cash flowsARREasily understood Easy to calculate Considers past-payback cash flowsIgnores the time value of any cash flowsNPVRelatively easy to calculateBest method for mutually exclusive ranking problemsHard to understandMay not work well in capital rationing problemsIRREasily understoodintuitive economic meaningOkay on simple accept–reject problemsTedious to calculateDoes not work well on non-simple problemsPlRelatively easy to calculateBest method for one-period capital rationing problemsHard to understandDoesn’t work well in some mutually exclusive choice situationsThe Processes (cont.)Selection of Projects A accept–reject decision based on competition for limited fundsThe hurdle rate may be based on: The cost of capitalThe opportunity costOther conceptual standards8The Processes (cont.)Financial Plan Analysis Activities:First, a comprehensive comparison of the selected alternativesSecond, measure the planned project selections against the initial company goals and objectivesFinance methods:LeasePurchase9Decision Factors Related To Finance methods Tax effectEffects on future financingRisk of obsolescenceSalvage valueMaintenanceDiscount rate10Equipment LeasingGeneral CharacteristicsDuring a fixed lease periodLessee uses the capital equipment Lessee plays a series of paymentse.g., monthly, semi-annual, or annual paymentsWhen the lease period ends, the equipment goes back to the lessor General Options:BuyInitiate a new lease11Equipment Leasing (cont.)Types of leasesOperating leasesShort-term leases that can be cancelled during the contract periodCapital leases Cannot be cancelled during the lease period without a significant penaltyFinancial leasesA source of financing for companies that require positive cash flows during the lease period12Disposal of Capital EquipmentIn general, most firms have not yet designed a clean process for the disposal of used equipmentFor some firms, purchasing is usually charged with the task of scrapping or selling retired equipmentFor others, it is the vendor’s responsibility13New vs. Used Capital Equipment PurchasingNew Equipment PurchasesNew equipment requires less maintenance than used equipment Determine the number of hours per year the equipment will be employedUsed Equipment PurchasesThe true value of used equipment is extremely difficult to estimateThe trade-off between: Long-term financing costsShort-term maintenance costsLow cost is usually the only reason to buy used equipment14Questions?15