Preview

Session 5 Exercise 3 Mini Case Report Make Or Buy TCO At Happyland Construction

Satisfactory Essays
Open Document
Open Document
943 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Session 5 Exercise 3 Mini Case Report Make Or Buy TCO At Happyland Construction
Executive Summary
Happyland Construction, an engineering firm engaged in the design and construction of oil shale plants, is building a new plant in Blissful Valley that requires the use of a new piece of equipment, a new crane. The GargantuLift 6000 crane model produced by Mega Corporation is the recommended crane by engineering, maintenance, finance, purchasing, and management staff. Senior management needs to decide whether it is more beneficial for Happyland Construction to purchase the crane outright from Mega Corp or subcontract (lease) it from Digger Construction. Both options require substantial resources and will affect future business. The figures presented by Sid, the chief purchasing officer demonstrated that it is less expensive to buy the crane directly from Mega Corporation than to lease it. The total cost of ownership for buying the crane is $14.52 million over 10 years’ period vis-à-vis $17.52 million to lease. (See Annexure 1 and 2 respectively)
Issue Identification
Happyland is planning to spend a lot of its resources in the next 10 years in paying for the crane. The company is evaluating the TCO of the crane involved in buying or leasing the large piece of equipment. The purchasing analyst prepared a breakdown of all the costs involved in the two options available. The strategic decision will be made during a meeting between the CEO, the purchasing manager, and the finance director. Happyland management needs to be sure that the company will have enough projects and resources to compensate for this capital investment and that they make the correct decision based on the cost, their resources and needs.
Qualitative Analysis
Happyland has grown over the last few years and became a world leader in the design and construction of oil shale plants. The company is building a new plant and in need to acquire a huge lift crane to support its operations at the new facilities. There is consent among all the technical, engineering, and administrative

You May Also Find These Documents Helpful

  • Good Essays

    Executive officers, Bill Hayes, president of the company and Hal Atkins, the Chief Financial Officer are concerned about the cost of the system in relation to the immediate tangible results, or lack there of, given in the proposal. They are basing their decision on their position to approve projects that are not able to…

    • 442 Words
    • 2 Pages
    Good Essays
  • Good Essays

    Jd 750 Case Study

    • 1054 Words
    • 5 Pages

    Our Company is now entering the heavy industrial market with the new construction tractor JD-750 a heavy bulldozer with 110 horse power and a fully automatic dual-path hydrostatic drive. These features are truly unique for our company since it is significantly larger than our previous product line. JD-750 should be priced right at Caterpillars D-5 and not higher based on the unique features of our product and I recommend pricing JD-750 at $64082.00 (Table A). The price suggested will meet our objective of maximizing profits in the first few years of the launch before our competitors enter the market. JD-750 is a niche product with technological innovation and will attract heavy construction…

    • 1054 Words
    • 5 Pages
    Good Essays
  • Good Essays

    Finance Case

    • 483 Words
    • 3 Pages

    The Venture Capital Division of Boeing has four projects on the table with three additional leverages of debt. As the financial analyst for the division I was given the task of evaluating the four capital budgeting projects. After evaluating each project I will recommend which project will bring the most value to shareholders and the firm.…

    • 483 Words
    • 3 Pages
    Good Essays
  • Good Essays

    HCS 405: Simulation Review

    • 1346 Words
    • 6 Pages

    The facility needs to purchase three machines. The machines needed are: an x-ray machine, high-speed CT scanner, and an ultrasound system. There are a few different options when purchasing medical equipment and in this case they are buying new, refurbished, or obtaining an operation or capital lease. The best strategy for obtaining a high-speed CT scanner would be to purchase a refurbished machine. The useful life of this equipment is 10 years. Although the hospital may need to upgrade the technology for the scanner in five years, buying a refurbished scanner is the best option. The hospital can upgrade the equipment again at a later time extending the useful life of this device. This will be recording as an asset but at a lesser value. The loan is also low at a 9% rate. The best option for obtaining an x-ray machine would be to choose a capital lease. The payment values are a higher percentage than if the facility were to choose an operating lease or purchase a refurbished machine. This x-ray machine is expected a useful life of 15 years. Even though the present value is lower, the facility will receive more use out of this equipment. The best option for obtaining an ultrasound machine would be an operating lease. This technology is expensive and will only have a useful life for about five years. The upgrade payment is lower as well as the monthly installment rate. Once the machine is obsolete, the hospital can upgrade the device with this plan. The facility will be paying more but in the grand scheme it will be cheaper with the upgrading options. When choosing the best options for purchasing equipment, it results in lower costs and more profits when thinking future tense. This is true even if the costs were higher at this time. Having the latest technology brings in more profit, saves money in the long run, and provides the best care to…

    • 1346 Words
    • 6 Pages
    Good Essays
  • Powerful Essays

    Northern Drilling Inc.

    • 1349 Words
    • 6 Pages

    The project involves an intermediate job, as well as a deep drilling job, and will require that Northern prioritize this contract over other existing contracts in terms of manpower and equipment. Northern has to assess the technical feasibility of this project before bidding with a competitive price.…

    • 1349 Words
    • 6 Pages
    Powerful Essays
  • Good Essays

    Bargaining power of the buyer is very high because of the fact that the groups that setup these petrochemical refineries can be counted on fingers & there are large No. of Crane manufacturing companies that willing to supply these cranes to these groups.…

    • 1181 Words
    • 5 Pages
    Good Essays
  • Powerful Essays

    Star Appliance

    • 1789 Words
    • 8 Pages

    Star Appliance is looking to expand their product line and is considering three different projects: dishwashers, garbage disposals, and trash compactors. We want to determine which project would be worth doing by determining if they will add value to Star. Thus, the project(s) that will add the most value to Star Appliance will be worth pursuing. The current hurdle rate of 10% should be re-evaluated by finding the weighted average cost of capital (WACC). Then by forecasting the cash flows of each project and discounting them by the WACC to find the net present value, or by solving for the internal rate of return, we should be able to see which projects Star should undertake.…

    • 1789 Words
    • 8 Pages
    Powerful Essays
  • Good Essays

    Wyndham Stores operates a regional chain of upscale department stores. They plan to open another store in a prosperous and growing suburban area. The company’s Vice President of Marketing is in favor of buying the new building site and building a new building on the property. The projected cost for the new building is $14 million, according to the vice president of marketing. The problem with the vice president’s proposal is that he does not take into account time value of money.…

    • 887 Words
    • 3 Pages
    Good Essays
  • Better Essays

    Hanson Private Label

    • 1184 Words
    • 5 Pages

    There are several strategic and economic considerations that influence the viability of this project for Hansson. First, analysis of the projected future cash flows provide indications as to if the project is economically desirable. The project’s future cash flows are…

    • 1184 Words
    • 5 Pages
    Better Essays
  • Powerful Essays

    Curled Metal Inc Essay

    • 3735 Words
    • 15 Pages

    ANNUAL POTENTIAL MARKET (feet driven) Pile hammers owned by pile-driving companies Leased pile hammers (min / max) Total pile hammers in industry (i) Weeks of use per year (ii) Hours of use per week (iii) Standard average actual driving speed (feet/hour) (iv) Total amount of feet of piles driven annually (v)= (i) x (ii) x (iii) x (iv) Pessimistic 13.000 6.500 19.500 25 30 20 292.500.000 Optimistic 13.000 13.000 26.000 25 30 20 390.000.000…

    • 3735 Words
    • 15 Pages
    Powerful Essays
  • Powerful Essays

    BIM and cost estimating

    • 10505 Words
    • 43 Pages

    The effects of project complexity and the use o f BIM on the estimating process…

    • 10505 Words
    • 43 Pages
    Powerful Essays
  • Satisfactory Essays

    Happyland Construction Inc. is an engineering firm involved in design and construction of oil shale plants. With their growing operations, Happyland needs to invest on a new crane (GargantuLift 6000) to be used on site. After financially analyzing their options, Happyland is left with a decision whether to outsource with a supplier or produce in-house. Below are the analysis done to compare both options:…

    • 601 Words
    • 3 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Happyland Construction

    • 613 Words
    • 2 Pages

    Pre Transaction Cost: - There are $500,000 as Pre transaction. This cost includes prior research working with mine production staff and engineering, Total time spend finding alternate supplies.…

    • 613 Words
    • 2 Pages
    Satisfactory Essays
  • Best Essays

    Case Study Woody 2000

    • 2614 Words
    • 11 Pages

    In 1989, Due to a mini-boom in commercial construction, Bruce Sharpe, the company’s VP Sales and Estimating persuaded directors to expand their manufacturing business. There were two options for the company to go and there were either stay in the premises and expand or relocate to completely new and more modern facilities. Due to various personal views on this issue and polarization of opinions, Ron Carpenter, also called “Woody”, organized a meeting of directors and key personnel to come to a resolution regarding this matter. Based on the meeting, project concept was settled that the company will remain at the existing property but will expand the current facility by 25%. The premises will be modernized with new equipment, software and hardware and the directors’ premises will be renovated. The budget available for the changes was set at $17 million and a target date of 18 months.…

    • 2614 Words
    • 11 Pages
    Best Essays
  • Powerful Essays

    In 1961 Sands Corporation won the competitive bidding to supply the military aircraft parts. Company executives decided to install a new plant to fulfil this contract in stipulated time. Company has two options to locate the new plant either at Kimberly Street or at Hampton…

    • 1554 Words
    • 7 Pages
    Powerful Essays