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MNET 414 Final Project JGourlay
MNET 414 Final Project JGourlay
Jacob Gourlay
Consultant
All,
Attached is the “Amazon Fresh – Refrigerated Box Truck Financial Analysis” report. The report
contains my findings regarding the refrigerated box trucks for the Amazon Fresh contract. This
report has been generated at the request of the review board to aide in the decision of which
manufacturers trucks to acquire.
The report is focused on the annual cost of the assets, as well as the difference in annual
benefits. The calculations only take one truck into consideration, using worst case factors,
chiefly the longest running route. Costs were calculated using the standard cost per mile,
adjusted to account for the refrigeration unit which incurs its own maintenance and fuel costs.
Furthermore, I took the liberty of calculating projected federal taxable income, and what we
can expect to pay over the 7-year lifespan per truck.
In my conclusion I detail my recommendation based on my research. I hope you all find this
report helpful in making you final decision. As always if there are any concerns regarding the
report feel free to contact my office at 1-234-567-8910.
Sincerely,
Jacob Gourlay
____________________________
1
Amazon Fresh
Refrigerated Box Truck Analysis
Jacob Gourlay
MNET 414-101 – Industrial Cost Analysis
Fall 2021
2
Table of Contents
Original Proposal…………………………………………………………………………………4
Company background………………………………………………………………………….5
Problem……………………………………………………………………………………………….5
Alternatives………………………………………………………………………………………….6
Economic Analysis………………………………………………………………………………10
Economic Comparison………………………………………………………………………..14
Taxes………………………………………………………………………………………………….15
Conclusion………………………………………………………………………………………….16
3
Original Proposal
SOS Logistics is a shipping company that was established in 2015 with a
small fleet of delivery vans. The company has grown over time and
added dry box trucks and tractor trailers to their fleet. Their largest
client is Amazon for whom they run shipments throughout NYC Metro
area.
Recently Amazon has been looking for a company to ship packages
from their Amazon Fresh facility in Avanel, New Jersey. Amazon Fresh is
a next day grocery delivery service, and in order to comply with food
safety regulations the packages need to be shipped in refrigerated box
trucks. SOS logistics needs to add 26-foot refrigerated box trucks. A
new class 4 truck costs around $42,000, on top of that the refrigeration
system (including the cooling unit, insulation etc.) adds approximately
$10,000. The usual life cycle of a class 4 truck is around 5 years, after
which maintenance costs begin to increase.
4
Company Background
SOS Logistics (SOLG) is a Long Island based logistics company found in
2009. Starting out with a small fleet of delivery vans, originally provided
outsourced services for construction supply houses and other local
small businesses. Growing slowly but surely, expanded fleet to include
26’ box trucks, 52’ trailers, and full-sized cabs. In 2015 secured first
contract with Amazon performing direct to customer deliveries. Seen
expansion as the e-commerce giant has established more than twenty
fulfillment centers in the NYC Metro area. Revenue over the last five
years has more than doubled and on track to continue this trend.
Problem
Amazon has recently set in motion plans to bring one of their newest
ventures, Amazon Fresh, to the east coast. This service has been
available in the Seattle area for close to two years now and has seen a
lot of success. SOLG bid on and won a six-route contract delivering to
Staten Island, Brooklyn, Queens, the Bronx, Yonkers, and Huntington. In
total the contract is value at around $900,000 annually. The deliveries
would be made once daily to respective distribution sites, out of a
warehouse located in Avenel, NJ. Amazon will be providing on site
offices for dispatchers and a lounge for drivers, as well as on site
parking for the delivery vehicles.
To comply with food safety regulations SOLG will need to acquire six
refrigerated 26’ box trucks. Further, it would be beneficial to acquire
brand new trucks to ensure reliable transportation times and maintain
critical food safety.
5
Alternatives
Isuzu
6
Hino
7
International
8
Freightliner
9
Economic Analysis
HINO - EUAW
Hino
MSRP $ 83,700.00
Max Milage Per Day $ 150.00
Max Milage Per Year $ 54,750.00
Annual Cost per Mile $ 75,555.00
EUAC $ 90,018.36
Contract Annual Value $ 150,000.00
Salvage Value $ 16,740.00
EUAB $ 152,055.67
EUAW $ 62,037.31
10
ISUZU – EUAW
Isuzu
MSRP $ 93,000.00
Max Milage Per Day $ 150.00
Max Milage Per Year $ 54,750.00
Annual Cost per Mile $ 75,555.00
EUAC $ 91,625.40
Contract Annual Value $ 150,000.00
Salvage Value $ 18,600.00
EUAB $ 152,284.08
EUAW $ 60,658.68
11
FREIGHTLINER – EUAW
Freightliner
MSRP $ 102,300.00
Max Milage Per Day $ 150.00
Max Milage Per Year $ 54,750.00
Annual Cost per Mile $ 75,555.00
EUAC $ 93,232.44
Contract Annual Value $ 150,000.00
Salvage Value $ 20,460.00
EUAB $ 152,512.49
EUAW $ 59,280.05
12
INTERNATIONAL – EUAW
International
MSRP $ 106,950.00
Max Milage Per Day $ 150.00
Max Milage Per Year $ 54,750.00
Annual Cost per Mile $ 75,555.00
EUAC $ 94,035.96
Contract Annual Value $ 150,000.00
Salvage Value $ 21,390.00
EUAB $ 152,626.69
EUAW $ 58,590.73
13
Economic Comparison
ALL ALTERNATIVES – EUAW COMPARISON
∆B/C COMPARISON
B/C Analysis
EUAB EUAC B/C Keep/Reject
Hino $ 152,055.67 $ 90,018.36 1.69 KEEP
Isuzu $ 152,284.08 $ 91,625.40 1.66 KEEP
Freightliner $ 152,512.49 $ 93,232.44 1.64 KEEP
International $ 152,626.69 $ 94,035.96 1.62 KEEP
14
Taxes and Depreciation
According to MACRS table trucks are considered 7-year assets
Straight-line
𝑏𝑎𝑠𝑒 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑎𝑠𝑠𝑒𝑡 − 𝑠𝑎𝑙𝑣𝑎𝑔𝑒 𝑣𝑎𝑙𝑢𝑒
𝑑𝑡 =
𝑢𝑠𝑒𝑓𝑢𝑙 𝑙𝑖𝑓𝑒
Declining Balance
2
𝑑𝑡 = (𝑏𝑎𝑠𝑒 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑎𝑠𝑠𝑒𝑡 − 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑐ℎ𝑎𝑟𝑔𝑒𝑠 𝑡𝑜 𝑑𝑎𝑡𝑒)
𝑢𝑠𝑒𝑓𝑢𝑙 𝑙𝑖𝑓𝑒
Deprecation
Year SL DBD DBD Charge to date
1 $ 9,565.71 $ 23,914.29 $ -
2 $ 9,565.71 $ 17,081.63 $ 23,914.29
3 $ 9,565.71 $ 12,201.17 $ 40,995.92
4 $ 9,565.71 $ 8,715.12 $ 53,197.08
5 $ 9,565.71 $ 6,225.08 $ 61,912.20
6 $ 9,565.71 $ 4,446.49 $ 68,137.29
7 $ 9,565.71 $ 3,176.06 $ 72,583.78
Total $ 66,960.00 $ 75,759.84
15
Pre Tax IRR
MARR =5%
Benefit Cost Salvage Total
1 -83700 0 -83700
2 150000 -75555 0 74445
3 150000 -75555 0 74445
4 150000 -75555 0 74445
5 150000 -75555 0 74445
6 150000 -75555 0 74445
7 150000 -75555 16740 91185
𝑵𝑷𝑾𝑳
𝒊(𝑰𝑹𝑹) = 𝒊𝑳 + (𝒊𝑯 − 𝒊𝑳 )
𝑵𝑷𝑾𝑳 + 𝑵𝑷𝑾𝑯
𝟓𝟎𝟓𝟒𝟑𝟓. 𝟒
𝒊(𝑰𝑹𝑹) = 𝟎. 𝟐𝟓% + (𝟔𝟎% − 𝟎. 𝟐𝟓%) = 𝟔𝟒. 𝟔𝟒%
𝟓𝟎𝟓𝟒𝟑𝟓. 𝟒 − 𝟑𝟔𝟒𝟎𝟖. 𝟔𝟑
𝟑𝟓𝟏𝟔𝟕𝟕. 𝟏𝟑
𝒊(𝑰𝑹𝑹) = 𝟎. 𝟐𝟓% + (𝟔𝟎% − 𝟎. 𝟐𝟓%) = 𝟔𝟏. 𝟑𝟑%
𝟑𝟓𝟏𝟔𝟕𝟕. 𝟏𝟑 − 𝟕𝟔𝟕𝟓. 𝟕𝟔
16
Conclusion
After a thorough investigation of the alternatives, I am recommending the
purchase of six Hino brand trucks. Opting for the Hino trucks will maximize yearly
profits from these routes. As can be seen from the calculations in this report the
Hino trucks have an equivalent unform annual worth of $62k, when calculating
for the worst case. While the margin is close, this brand of truck also boasts a
higher MPG, which will save money going forward.
From a tax perspective it would be wise to employ the declining balance
deprecation approach. This will allow depreciating much more early on, and
nearly $10k more over the life of the assets. Further this approach will save close
to $2k in federal taxes.
17