Akron Crane Works: The Insourcing Proposal

Due February 12, 2024 PRIOR to the start of class. Have ONE person from your team upload your excel
file to the D2L dropbox called “Akron Crane.” The person uploading the file MUST put in the description
section the first and last names of each team member.

An excel file has been placed on D2L with the exhibits. Note that there are a few assumptions in the
base case that CANNOT be changed - the investments are made at t 0, that all cash flows will occur at
the end of the year. DO NOT change depreciation expense to CCA – Akron Crane is a US company and
will follow US tax code. Depreciation expense is calculated using the required MACRS process for a
seven year asset (for each year simply take the initial purchase price times the MACRS depreciation
rate to get the amortization expense for that year). You may not alter the US tax code to suit your
needs. Assume a final salvage value at the end of t6 equal to $174,680.

Between now and the start of class on February 12 your team (maximum 4 students per team) are to do
the following analysis:

1. Calculate the NPV and the IRR for the proposal following the approach outlined by Tang.
2. Document the labour costs in detail (acknowledge that labour is typically added discretely – that
is one person at a time). You must use the total labour cost, labour hours, and labour rate from
the base case (item 1. Above) top determine how many employees are needed, use simple
rounding rules (e.g. 8.5 = 8 employees, 8.6 = 9 employees). Recalculate the NPV and IRR using
the new labour cost estimates.
3. Explore the differences between the two models you have created. Are there any advantages to
the more realistic model – what are they?
4. What are the key value drivers for each project (that is, which variables/assumptions have the
most impact on value). How do you know and what are some of the major risks and
uncertainties you foresee with the project(s).

You will be given additional information during the February 12 class so it is important that you and your
team are familiar with the case and the model you have created.