APPLYING THE ENGINEERING

ECONOMY KNOWLEDGE IN
BUYING A CAR

1. Ngô Xuân Minh 2053219

2. Đào Quang Chính 2052896
3. Huỳnh Lê Châu 2052890
4. Lê Quốc Khải 2052129
Table Of Contents

About The
1 Introduction 2 Project

Cash Flow
3 Evaluation 4 Conclusion
1
Introduction
Introduction
The project is conducted to provide readers the overview of the decision
making process applied to Economic Engineering principles to determine the
most economically viable solution of automotive purchasing.

3 Alternatives
Life cycle : 10 years
Initial Budget : 250 Millions VND
 Alternatives
We have an initial budget of 250 million VND, and we will use that money
with three main alternatives to buy a car in 10 year as follow:

Alternative 1 Alternative 2 Alternative 3

The remaining of the Follow up the instalment policy of Leave our money as savings
purchase is a loan from the the retailer, with the initial payment in the bank
bank with specific interest & an amount of amortisation money
rate each year
Methodology
To conduct the economic evaluation of the projects, we have used
several Economic Engineering principles including :

1. Interest Rate : Single & Compound Interest

2. Minimum Attractive Rate - MARR
3. Single Payment Factors
4. Uniform Series Present Worth & Capital Recovery Factor
5. Arithmetic Gradient Factor
6. Geometric Gradient Series Factor
7. Rate of Return Analysis
8. Incremental Analysis
Need Analysis
600, 000 vehicles 800-900K vehicles in 2025
annually 1.5 -1.8M vehicles in 2030

Family Use Hybrid Use Commercial Use

2
About The Project
 Choosing A Suitable Car
Kia Morning Hyundai Grand i10 Toyota Vios

Price 355 million VND Price 435 million VND Price 561 million VND

Size LxWxH 3,595 x 1,595 x 1,485 mm Size LxWxH 3,805 x 1,680 x 1,520 mm Size LxWxH 4,425 x 1,730 x 1,475 mm

Engine Kappa 1.2 MPI Engine 1.5L Gasoline Engine

Engine 1.25L . Gasoline Engine
Maximum 83 Horsepower Maximum 107 Horsepower
Maximum power 83 Horsepower power power

Fuel 6.8L/100km Fuel 7L/100km Fuel 5.7L/100km

Consumption Consumption Consumption
 Choosing A Suitable Car
Price Size Efficiency Consumption Total

Kia Morning 9 5 6 5 25

Hyundai Grand i10 8 6 6 6 26

Toyota Vios 7 8 8 7 30

Table: Evaluation Matrix for choosing suitable car

After researching the market, we chose Toyota Vios as the right model to be used in
technology motorbike taxi work.
 Initial Investment

Payment Type Cost

Car’s price (VAT and insurance 481,500,000 VND
included) for Toyota Vios 1.5E MT
Registration tax (10%) 48,150,000 VND
Inspection fee 350,000 VND
Fee for licence plate (for HCM City) 20,000,000 VND
Total 550,000,000 VND
Table: The initial investment on the project
Income (From savings)
Year Money savings (monthly) Money savings (yearly)

1 3,000,000 36,000,000
2 3,300,000 39,600,000
3 3,630,000 43,560,000
4 3,993,000 47,916,000
5 4,392,300 52,707,600
6 4,831,530 57,978,360
7 5,314,683 63,776,196
8 5,846,151 70,153,816

9 6,430,766 77,169,197

10 7,073,843 84,886,117
 Income (From Driving)
50 customers/days/weekend

40.000 VND/ customer

52 weeks/year

20% for Grab & 10% energy fulfillment

⇨ Net revenue from driving = 40,000 * 25* 52 * 2* 70%= 72,800,000 VND

Expenses

Table: The monthly and annually cost when buying car

 Salvage value

The remaining value of the car after 10 years according to the evaluation of the
marketplace is 20% compared to the original value of the car.

→ Salvage value = 550,000,000 x 30% = 165,000,000 VND

3
Cash Flow Evaluation
Alternative 1
Borrow 300,000,000 VND from the BIDV Bank with the
interest rate i =10.5% per year, the loan must be completely
paid after 5 years.

Capital Investment 250,000,000

Annual Payment (for the first 5 years) 80,152,649
Annual Expenses (for 10 years) 18,390,000
Income (Revenue) - 10 years 2,231,239,444
Salvage Value 165,000,000
IRR 24.37%
Alternative 1
Alternative 1

The IRR for Alternative 1 is 24.37%, which is larger than the 20% of MARR, so that
this project alternative is feasible.
Alternative 1

After 5 years payment for the bank and work hardly 10 years. The income is
1,149,328,554 VND. However, we will not keep the income there BUT send it
into BIDV bank with the interest rate of 7.4% per year. After 10 years, the
total money that we could get is 1,386,208,332 VND
Alternative 2
With budget of 250,000,000 VND. When buying the car follows
the instalment policy of the retailer, we must pay the initial
payment with an amount of amortisation money each year with the
rate of interest is 7.8% for the first year and 11% for the next 6-year.

Capital Investment 250,000,000

Annual Payment (for the first 7 years) 61,471,595
Annual Expenses (for 10 years) 18,390,000
Income (Revenue) - 10 years 2,231,239,444
Salvage Value 165,000,000
IRR 26.17%
Alternative 2
Alternative 2

The IRR for Alternative 2 is 26.17%, which is both larger than the IRR of Alternative
1 and the 20% of MARR, so that this project alternative is feasible.
Alternative 2

After 7 years payment for the bank and work 10 years. The income from both
savings and driving cars of Alternative 2 is 1,117,319,081 VND. However, we will
not keep the income BUT send into BIDV bank with the interest rate of 7.4%
per year. After 10 years, the total money that we could get is 1,379,178,468 VND.
Alternative 3

Doing nothing, means that we do not spend money to buy a car. We

send both our initial money and savings each year into the BIDV bank
with the interest rate of 7.4% per year for 10 years.
Alternative 3 First Savings 250,000,000
Year 1 36,000,000
Year 2 39,600,000
Year 3 43,560,000
Year 4 47,916,000
Year 5 52,707,600
Year 6 57,978,360
Year 7 63,776,196
Year 8 70,153,816
Year 9 77,169,197
Year 10 84,886,117
Interest Rate 7.4%
Alternative 3
 Alternative 3

In the Final year (the tenth year), the total amount of money that we will get is
1,274,520,045 VND. However, at that time, we will not have any cars at all. And with
the increase rate of the car price every 5 years is 10%, compounded annually, which
is 2% per year. The money that we must pay to buy that car after 10 years is
670,446,931 VND instead of 550,000,000 VND.
Incremental
Incremental
Incremental

Since the rate of return on extra investment is

-2.29 % < MARR 20 %, the Alternative 1 is
selected.
4 Conclusion
The alternative 3 is eliminated since it
does not meet the present demand of
the consumer which is to have a new
car.

The Internal Rate of Return - IRR value

is -2.29 % < MARR at 20% .
⇨ The alternative 1 is selected to have the
most profitable outcomes for this case.
 Thanks!
For Your Attention
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