FACULTY OF MECHANICAL AND MANUFACTURING ENGINEERING

BDA 40902 ENGINEERING ECONOMY

GROUP ASSIGNMENT (ASSIGNMENT TASK 2)
SEMESTER 1 2021/2022

SECTION : 09
GROUP : 05
LECTURER : Dr. RD KHAIRILHIJRA' BIN KHIROTDIN

GROUP MEMBERS
NO NAME MATRIC NO. PHOTO

1. ALLISON A/L SOUNDRAPAMAN CD190212

2. AMIRUL NAIM BIN ZAHARI CD190255

3. LIZAWATI BINTI SALLEH CD190028

MOHAMAD ALIF HAIQAL BIN

4. CD170203
ZULKIFLI

5. NURUL BALQIS BINTI KHAMIS CD190186

 TABLE OF CONTENT
CHAPTER 1 INTRODUCTION
1.1 Introduction 1
1.2 Application of business fund 2-3
1.3 Determination of Monthly Instalment – Application of A/P 4-5
or A/F
1.4 Evaluation of Profitability or Non-Profitability of Business 5-10
Proposal – Application of Single Alternative Evaluation
using PW Method
CHAPTER 2 CONCLUSION
2.1 Conclusion 11
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CHAPTER 1
INTRODUCTION
1.1 Introduction
According to Kevin and Alana (2021), financial plan is one of the methods that someone can
achieve their targets or goal and it is one of the roadmaps of the money that someone has or
can be done. By providing financial planning it can provide a detailed description of the present
financial situation as well as the financial objectives and any methods that someone or
organization devise to attain them. All the cost either the cash flow, savings, debt, investment
or even insurance and any other aspects of the financial should also be included in the financial
planning to track all the money that been used in the daily routine or even the monthly
expenditure. To achieve the goals either in short or even long terms, financial planning is one
of the best techniques to be used in company financial resources.
Post-natal food service is a business that also needs a particular money to start up the
business. After performing the calculation of cost to start this post-natal food service that been
done in assignment task 1, we have decided to apply loan from the bank related to accomplish
our business. By doing so, it will help us to manage our financial when performing the business.
Since our business required a huge amount of money needed to perform the business, a
financial planning is a must to track all the cash flow that involved, or any transaction relates
with our business to ensure the flow of our money is still on track.
Referring to the assignment task 2 that have been assigned, few criteria been provided for
us to perform the calculation to ensure that we have the capability to pay back the loan we
applied from the bank within the period that has been set by the bank. In order we achieved the
requirement, few criteria been set to ensure we able to pay the amount of loan. We have been
using the PW (Present Worth) method to evaluate it as single alternative. This method is a
method for us to perform the evaluation either our business proposal that been proposed is
either profitable or non-profitable. By doing this, we will be able to avoid any loss when
performing or conducting our business.
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1.2 Application of business fund

After estimating the cost of material, the cost of machinery and maintenance machine, the
finalized cost of starting our company, Mechluscious Co are as follows:
Table 1.1 Estimation of cost
COST VALUE
Fixed cost RM168281.60/year
Variable cost RM32132.02/month
Quantity 40 pax

The total price for variable cost per person is:

𝑅𝑀32132.02
= 𝑅𝑀803.30/𝑝𝑎𝑥
40 𝑝𝑎𝑥

The total cost:

𝑇𝐶 = 𝐹𝐶 + 𝑉𝐶 (𝑄 )
𝑅𝑀168,281.60 𝑅𝑀803.30 12𝑚𝑜𝑛𝑡ℎ
𝑇𝐶 = +( × ) (40)
𝑦𝑒𝑎𝑟 𝑚𝑜𝑛𝑡ℎ 𝑦𝑒𝑎𝑟
𝑇𝐶 = 𝑅𝑀553,865.60/𝑦𝑒𝑎𝑟

The startup cost for this business is RM 553,865.60. We have a monthly objective or target in
order to keep this business going for a longer period of time. We decided to apply for a bank
loan was the simplest method to start a business. After do a survey about loan, we assume that
we chose Malayan Banking Berhad or Maybank as our lender. With a total price of
RM553,865.60 we agreed to take out an RM 560,000.00 loan with a 4% annual interest rate.
The loan will be paid back over 15 years period.

Figure 1.1 Cash Flow Diagram of Business start-up

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Where,

i = interest rate per year

N = number of years
P = initial loan from the bank
F = total debt needed to pay to the bank

𝐹 = 𝑃 (1 + 𝑖 )𝑛
𝐹 = 560,000(1 + 0.04)15
𝐹 = 𝑅𝑀 1,008,528.36

Bank loan

There was a financial plan that was going to be released in order to launch this business without
any issues. The application for a loan with the requisite cash is critical in order to assist in the
acquisition of assets that are necessary for the operation of our business.
The following are the details of the business loan:

1. Bank Name: Malayan Banking Berhad

2. Loan Amount: RM560,000.00
3. Interest Rate: 4% Per Year
4. Payment Duration: 15 Years (180 Months)
5. Monthly Payment:
𝑅𝑀 1,008,528.36
𝑀𝑜𝑛𝑡ℎ𝑙𝑦 𝑝𝑎𝑦𝑚𝑒𝑛𝑡 =
180 𝑚𝑜𝑛𝑡ℎ𝑠
𝑀𝑜𝑛𝑡ℎ𝑙𝑦 𝑝𝑎𝑦𝑚𝑒𝑛𝑡 = 𝑅𝑀 5,602.94
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1.3 Determination of Monthly Instalment – Application of A/P or A/F

According to the previous calculation, the total amount of debt paid to the bank is
RM1008528.36. The total amount is financed through a bank loan with a 4% interest rate and
a 15-year repayment period. Using the A/F method, we determine the monthly amount that
must be paid for the financial loan. We used the A/F approach to obtain future costs and present
annual costs while accounting for the sinking fund component. A represents the monthly
payment amount, and F represents the total amount owed to the bank. Figure 1.2 shows the
cash flow diagram of the application.

Figure 1.2 cash flow diagram.

Since the value of,
𝑖 = 4% 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟, 𝐹 = 𝑅𝑀1,008,528.36, 𝑛 = 15
Based on the compound interest table, (A/F,4%,15) in Figure 1.3:

Figure 1.3 Compound Interest Table

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Using A/F formula,

𝐴
𝐴 = 𝐹 ( , 𝑖, 𝑛)
𝐹
𝐴
𝐴 = 𝑅𝑀1,008,528.36 ( , 4%, 15)
𝐹
𝐴 = 𝑅𝑀1,008,528.36(0.5553)
𝐴 = 𝑅𝑀560,035.80 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
𝑅𝑀560,035.80
𝐴=
12
𝐴 = 𝑅𝑀46,669.65 𝑝𝑒𝑟 𝑚𝑜𝑛𝑡ℎ
According to our calculations, the monthly instalment payment required to pay the bank is
RM46,466.65 each month for a period of 15 years.
1.4 Evaluation of Profitability or Non-Profitability of Business Proposal –
Application of Single Alternative Evaluation using PW Method
To improve financial planning, present value (PW) is required. We must examine our
beginning cost, profit each year, expenses, and machine lifetime to get the present value (PW).
The overall machinery cost is summarised in Table 1.2.
Table 1.2 Total Machinery Cost (cheap Machinery)
Description Unit Price/unit (RM) Cost (RM)
Olympia CM-80 Plus
1 440.00 440.00
Electronic Cash Register
HP Laptop 15S-
EQ1017AU
1,649.00 1,649.00
- Logitech B100 1
15.90 15.90
Business Optical
Mouse
Elba Built In Oven 70 L
1 1,740.00 1,740.00
ELB-EBOE7081DSS
Pensonic 10L
Commercial Rice Cooker 1 561.00 561.00
PGR-8100
Philips 2L HR2223/01
1 309.00 309.00
Series 5000 Blender Core
Double tank 6L x 2
electric oil cooker deep 1 380.00 380.00
fryer frying basket power
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commercial stainless
steel
Imax Display Chiller 2
1 2,280.00 2,280.00
Door
Pensonic 400L Chest
1 1,469.00 1,469.00
Freezer PFZ-402
Msm 4 Open Burner
Countertop Range Btu 1 2,240.00 2,240.00
60,000 MSM-4-OB
120x36x88cm Black
Striped Wooden Cashier 1 375.00 375.00
Counter
Sam Point_Home Office
1 100.00 100.00
Chair
Royaco Kerusi Plastik
Tahan Lasak (Plastic 15 14.50 217.5
Chair) with Rubber Base
Hisense Standard Air
Conditioner air-cond 1 799.00 799.00
(1.0HP) R32 AN09CBG
H5'xl4'xd2' Boltless
Racking Home Storage
5 255.00 255.00
Warehouse Storeroom
Office File Rack
MCPRO Aluminium
Double-Sided Ladder 10 1 200.00 200.00
Steps 100
TOTAL 13,030.40

The project can be proceeded and accepted if the PW gives the positive sign, but if the PW
gives the negative sign, the project will cause losses and should not be proceeded. However, if
the PW is equal to zero, it shows that the project is break-even, and the project is not profitable.
Our target for this project is the acceptable rate of return for our business to be 10% per year.
Thus:
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Total Revenue = Price (P)×Quantity (Q)

Total Revenue = 803.30 ×1000

Total Revenue = RM 803,300.00

The sunk cost of the machinery after a particular time is also known as balance (F), by assuming
that after 15 years of operation, the machinery cost will drop to 80% from its original price.
20
F= 𝑥13030.40
100

F = RM2,606.08

Table 1.3 Parameters used to calculate PW

Initial Cost (P) -RM 141,443.6

Total Revenue (A1) RM 803,300.00
Ownership Cost (A2) -RM 21,788.00
Balance (F) RM 2,606.08
Machine Lifetime (n) 15
By using all the parameters above, we can now calculate the PW as below:
𝑃 𝑃
𝑃𝑊 = 𝑃𝑂 + (𝐴1 + 𝐴2) ( , 𝑖, 𝑛) + 𝐹 ( , 𝑖, 𝑛)
𝐴 𝐹
𝑃 𝑃
𝑃𝑊 = −553,865.60 + (803,300.00 − 21,788.00) ( , 10%, 15) + 2,606.08 ( , 10%, 15)
𝐴 𝐹
𝑃𝑊 = 5,510,259.72 > 0
The present value is RM5,510,259.72 and is above zero. The investment is, therefore, efficient
and can be acknowledged
Figure 1.4 shows the cash flow diagram after calculating the present worth (PW).

Figure 1.4 Cash Flow Diagram of Present Worth (PW)

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Table 1.4 Total Machinery Cost (Expensive Machinery)

Description Unit Price/unit (RM) Cost (RM)
KMS Autocount 1 788.00 788.00
Dell Vostro 3510 1 2,499.00 2,499.00
- Logitech M331 Silent 1 65.00 65.00
Plus
Pacifica Built-In Oven 1 1,999.00 1,999.00
POVS9 Titan
Pensonic PGR-8200 1 739.00 739.00
20L
Butterfly B-596 Food 1 635.00 635.00
Blender
Fresco 1 550.00 550.00
Solid Cool 1 3,580.00 3,580.00
Haier 750L 6-In 1 1 2,439.00 2,439.00
Convertible Chest
Freezer HAI-BD788HP
Faber 4-Burner Free 1 2,493.00 2,493.00
Standing Cooker
FISSO 9844E/BK
VSS Ex 7 Feet 1 630.00 630.00
Reception Counter
Office Table
EXCT2100
IP-M18/MB 1 269.00 269.00
MEDIUMBACK
CHAIR
3V LA701 Stackable 15 31.90 478.5
Plastic Chair
Panasonic 1.0HP 1 1,099.00 1,099.00
Standard Non-Inverter
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R32 Air Conditioner

CS-PN9WKH-1
RS PRO 5 Shelf 5 563.48 2,817.40
Chipboard
SUMO-KING Heavy 1 383.99 383.99
Duty Multi-Purpose
Ladder
Kitchen Tools 1 set 2500 2500
Zebra Stainless Steel 1 3140 3140
TOTAL 27,104.89
If the PW is positive, the project can be moved forward and accepted; however, if the PW is
negative, the project will incur losses and should not be moved forward.
Therefore,
𝑇𝑜𝑡𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 = 𝑃𝑟𝑖𝑐𝑒 (𝑃) × 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦(𝑄)
𝑇𝑜𝑡𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 = 19,800 × 50
𝑇𝑜𝑡𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 = 𝑅𝑀 990,000
The sunk cost of the machinery after a specific time is also known as balance (F), and it is
calculated by assuming that after 15 years of operation, the machinery cost will be reduced to
80% of its original price.
20
𝐹= × 27,104.89
100
𝐹 = RM 5,420.97
The parameters needed to obtain the value of present worth (PW) by considering the interest
rate 10% per year as shown in Table 1.5.
Table 1.5 Parameters used to calculate PW
Initial Cost (P) -RM 27,104.89
Total Revenue (A1) RM 990,000.00
Ownership Cost (A2) -RM 21,788.00
Balance (F) RM 5,420.97
Machine Lifetime (n) 15 years

Using all of the above variables, we can now determine value PW as shown below.

𝑃 𝑃
𝑃𝑊 = 𝑃 + (𝐴1 + 𝐴2) ( , 𝑖, 𝑛) + 𝐹( , 𝑖, 𝑛)
𝐴 𝐹
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𝑃 𝑃
𝑃𝑊 = −27,104.89 + (990,000.00 − 21,788.00) ( , 10%, 15) + 5,420.97 ( , 10%, 15)
𝐴 𝐹
𝑃𝑊 = 𝑅𝑀7,338,413.36 > 0

The present value is above zero. Therefore, this investment can be acknowledged.

Figure 1.5 Cash Flow Diagram of Present Worth (PW)

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CHAPTER 2
CONCLUSION
2.1 Conclusion
Financial planning is a method that all of business owner need to perform it before they launch
their business. This is one of the techniques that able to avoid any lost that might happen when
doing any business either a small or even a big business itself. Without any financial planning
been done by the business owner, it will be the reason why some of company cannot continue
or proceed their business to the end because they did not do or provide any financial planning
before they decide to open or launch their business at the very beginning. Without any good
financial planning been done, any business owner would not be able track their cash flow or
manage their financial properly. A specific calculation should be done when doing the
calculation to calculate the cost involve doing any business. From this, the cashflow can easily
be tracked or recorded and helps the owner to manage their financial.
For our post-natal food services, after performing the calculation for cost, the cost that we have
obtained was 𝑅𝑀553,865.60 per year. This cost for 40 pax of customers per month as per our
estimation. Which our fixed cost RM168281.60 per year. But the fixed cost especially for the
machinery such as for electronic machinery like chiller, freezer, blender, and any machinery
related to do the cooking activity not required to buy it every year. The fixed cost for machinery
might be expensive at the first year and it will be reduced when we enter the second year of
business which this will saves us a lot of money and able to make profit from it. Next, we have
been calculated also the minimum price for our product for each person for a day which it
should not less than RM38.45 per day. But as a business owner, we able to mark up the price
to ensure we gain the profit for our business. To ensure the price of the service is equal to the
food that been prepared, the quality of foods and services from the business owner also plays
a very important role to ensure the customer satisfaction can be achieved.
We also calculate the amount of loan that we need to apply. After performing the calculation
for the loan, we have decided to apply loan with the value of RM560,000 from the bank with
the interest rate of 4% and we obtained the value of we need to pay back to the bank is
RM1,0008,528.36 for the 15 years terms and the monthly instalment is RM46,669.65 per
month. After calculating the value of annuity, it is open our eyes wider to work harder to gain
more customer for us to achieve our target and we able to pay the monthly payment to the bank
in addition to gain benefits and profits as well without having any lost.
As for the conclusion, to perform or to open any business it is required someone to manage
properly and to plan well their flow to avoid any consequences that might happen especially
when it is involved with the money. A very good financial planning also a must so that it helps
the owner to track all the transaction in and out of the money during the business. Without any
proper financial planning been done, any business owner never know that they have been facing
the lost for their business until they need to shut down their own business. By performing the
calculation from assignment task 1 and task 2, it makes us realise that a good business proposal
and proper financial planning helps someone to open their business smoothly when it comes to
financial.