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  • Small Machines: Case 8.2: Calmex Company LTD

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    Syed Faraz
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    Calmex Company Ltd is evaluating two options for manufacturing tanks: using small machines or a large machine. Using small machines would cost Rs. 460 million to operate and manufacture 64.2 million tanks with net revenue of Rs. 115.8 million. Using a large machine would cost Rs. 500 million to operate and manufacture 54 million tanks with net revenue of Rs. 126 million. Compared to small machines, the large machine has a higher NPV of Rs. 1.94 million and IRR of 13.69%, so the large machine is the recommended option.

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    CH-08

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    Calmex Company Ltd is evaluating two options for manufacturing tanks: using small machines or a large machine. Using small machines would cost Rs. 460 million to operate and manufacture 64.2 million tanks with net revenue of Rs. 115.8 million. Using a large machine would cost Rs. 500 million to operate and manufacture 54 million tanks with net revenue of Rs. 126 million. Compared to small machines, the large machine has a higher NPV of Rs. 1.94 million and IRR of 13.69%, so the large machine is the recommended option.

    Copyright:

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    Download as PDF, TXT or read online from Scribd
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    43 views1 page

    Small Machines: Case 8.2: Calmex Company LTD

    Uploaded by

    Syed Faraz
    Calmex Company Ltd is evaluating two options for manufacturing tanks: using small machines or a large machine. Using small machines would cost Rs. 460 million to operate and manufacture 64.2 million tanks with net revenue of Rs. 115.8 million. Using a large machine would cost Rs. 500 million to operate and manufacture 54 million tanks with net revenue of Rs. 126 million. Compared to small machines, the large machine has a higher NPV of Rs. 1.94 million and IRR of 13.69%, so the large machine is the recommended option.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    of 1

    Case 8.2: Calmex Company Ltd.

    Number of tanks 120,000


    Price (Rs) 1500
    Revenue (Rs million) 180
    Small machines
    Cost of four small machines (Rs millinon) 460
    Op. and mfg. cost (Rs) 535
    Total op. and mfg. cost (Rs million) 64.2
    Net revenue (Rs million) 115.8
    Discount rate 12%
    Project life (years) 6
    PVFA 6, 12% 4.1114
    NPV (Rs million) 16.1
    IRR 13.23%
    Large machine
    Cost of large machine (Rs million) 500
    Op. and mfg. cost (Rs) 450
    Total op. and mfg. cost (Rs million) 54
    Net revenue (Rs million) 126
    Discount rate 12%
    Project life (years) 6
    PVFA 6, 12% 4.1114
    NPV (Rs million) 18.0
    IRR 13.26%

    Incremental cash flows (large - small machines)


    Cost (Rs million) 40
    Net revenue (Rs million) 10.2
    Discount rate 12%
    Project life (years) 6
    PVFA 6, 12% 4.1114
    NPV (Rs million) 1.94
    IRR 13.69%

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