# TPM Case Solution & Answer

## TPM Case SolutionÂ

After multiplying its net cash flow with its discounting factors, it resulted in achieving the present values which were then added and subtracted from \$28,000,000 book value of the machine to reach its net present value.(TURNER)

Projects can be replaced at the end of their- respective life

After analyzing the case and assessing the data provided and calculating the net present value and annualized equivalent cost of both the projects,itwas determined that if the projects are independent, then both projects could be accepted as both projects have positive net present value and could derivepotential benefit to the company over the years of their useful life.

Sensitivity Analysis

A sensitivity analysis could be conducted to determine the sensitivity of the projects. It identifies howsensitive a project is to the changes in the output of the equipment and regarding the reductionin net working capital and the salvage value of the equipment as well asits labor cost.

1. NPV Sensitivity to Output: If the total output decreases by 4.79%, then the net present value of the new equipment would benegative, which would result in the project becoming unbeneficial to the company.
2. NPV Sensitivity to Reduction in Net working Capital:If the reduction of net working capital increased by 24%, then the net present value of the new equipment would become negative, which would result in the project becoming unbeneficial to the company.
3. NPV Sensitivity to Salvage Value: If the salvage value of the new equipment decreases by 19% then the net present value of the new equipment would become negative, which would resultin the project becoming unbeneficial to the company.
4. NPV Sensitivity to Labor cost: If the Salvage value of the new equipment decreases by 19%, then the net present value of the new equipment would become negative, which would further result in the project becoming unbeneficial to the company.(H. Wei)

Financial factors

Before engaging in any new project, financial analysis is necessary and important to assess the project. In order to evaluate how much finance would be needed for the project, the capital investment depends on the size of the project. In order to efficiently determine the feasibility of the project from completion till production has commenced, the following financial analysis should be conducted.

1. Cost of Capital: The total cost of preparing the project should be determined by the senior manager overseeing the project, and this value was referred to as the cost of capital of the project. It includes the total expenses including the cost of acquisition of machinery and the cost of installation and its set up cost and any other cost, which the company would in curuntil the start of the production.
2. Working Capital: The company should also evaluate and assess the total cost of maintenance that would be faced by the company over the life of the project and other expenses which would in curfor operating the project until the project reaches the stage of full production.
3. Operational Cost: The Company should also assess and evaluate the repetitive cost incurred after the production has commenced including the cost of raw material and the cost of total labor as well as other overheads that would be faced by the company annually……………………… Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â Â This is just a sample partial work. Please place the order on the website to get your own originally done case solution
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