The engineering calculation on the telecommunication project isneeded to analyze the feasibility of the project and the totalvalue of investments. As the Project Manager, you have to do thefinancial analysis of your telecommunication project to get theconclusion of whether this feasible to run the project or not. Youhave to prove your analysis by giving the project calculation interms of Net Present Value (NPV), Present Worth Analysis, andBreak-Even Point (BEP) based on the initial investment, % ofinterest, and the project period are given.
The Detail Situation:
The company is considering the installation of a high-end serverfor handling the system with the first initial cost [check pointA]. This system will save $7,500,000 per year in spare part cost,but it will incur $2,750,000 in annual operating and maintenanceexpenditures. The salvage value at the end of the system’s X-year[check point B] life is [check point C].
At the end of the project, the company will invest the newserver for the next X upcoming year [check point B] with initialthe initial cost of $50,000,000. This new system will save$8,500,000 per year in spare part cost, but it will incur$3,850,000 in annual operating and maintenance expenditures. Thesalvage value at the end of the system’s X-year [check point B] isnegligible.
There is another option to cover the requirement by combining 2different situations. At the first X years [check point B], thecompany will rent a high-end server for handling system the rentcost $5,000,000/ year. There is no budget that needs to beallocated for spare part cost, and it will incur $1,500,000 inannual operating and maintenance expenditures. In the secondperiod, the company will invest the new server for the next Xupcoming year
[check point B] with initial the initial cost of $50,000,000.This new system will save $8,500,000 per year in spare part cost,but it will incur $3,850,000 in annual operating and maintenanceexpenditures. The salvage value at the end of the system isnegligible.
If the company’s hurdle rate (MARR) is X% per year [check pointD], which scenario that should be recommended forimplementation?
Group C (att.list no 7- 9):
- The first initial cost [point A] = $35,000,000
- Project duration [point B] = 8 years
- The salvage value at the end of the system’s [point C]= $2.500,000.
- (MARR) is = 12 % per year.
