JCU Finance: CHL Health Economic Analysis of Car Options Report

This report presents an economic analysis of two vehicle options, the Tesla Model X 100D and the BMW 6 Series 640i xDrive, for CHL Health Pty Ltd. The analysis, conducted for the purpose of employee motivation and fleet replacement, includes a cost-benefit analysis and a sensitivity analysis. The report considers various factors such as purchase costs, operating expenses (including fuel, insurance, and servicing), and potential trade-in values. The core of the analysis involves calculating the present value of costs and benefits over a five-year period and converting them to equivalent annual costs to determine the most economically viable option. The report also considers the environmental sustainability aspect as per the company's policy, comparing the financial implications of each vehicle choice to guide the board's decision-making process. The analysis concludes with recommendations based on the economic and environmental considerations.

Running head: ECONOMIC ANALYSIS OF CARS
Economic Analysis of Cars
Name of the Student:
Name of the University:
Author Note:

1ECONOMIC ANALYSIS OF CARS
Executive summary:
The cost- benefit analysis is an important factor for any company before undertaking any
project whether it is for revenue generation or for the benefit of the employee. The CHL
health private limited is undertaking such an analysis for rewarding its employee for working
hard. The company is focused on improving and using sustainable technology for the
improvement of the environment while also seeing the economic cost which might impact the
company. In the following report a cost benefit analysis is undertaken by the company to
analyse the impact of two possible vehicle options. These vehicles would be given by the
company to the best performing employees as a motivation. The vehicles under consideration
are the Tesla Model X series 100D and the BMW 6 series 640i X drive. The former being an
electric drive and the latter being run on petrol. A cost benefit analysis is undertaken for these
vehicles to study the economic impact which might affect the company.

2ECONOMIC ANALYSIS OF CARS
Table of Contents
Introduction:...............................................................................................................................3
Discussion:.................................................................................................................................3
Tesla X model 100D VS BMW 6 Series 640i X drive:.........................................................3
Assumptions in the Analysis:.................................................................................................4
Cost Analysis of Tesla X model 100 D:.................................................................................5
Cost Analysis of BMW 6 Series 640i X drive:......................................................................5
Comparative Analysis:...........................................................................................................6
Sensitive analysis of the Project:............................................................................................9
Conclusion:..............................................................................................................................10

3ECONOMIC ANALYSIS OF CARS
Introduction:
Employee satisfaction and comfort leads to increased productivity and any benefits to
the employee acts as a motivation to increase their productivity. Employee benefits can be
given in the form of monetary, leisure or comfort. A company giving their employees
company sponsored vehicle acts as a way of employee benefit in the form of comfort. This
motivates them to work hard and in an efficient manner.
The company under consideration CHL Health Pty Ltd already has a fleet of vehicles
which it gives its employees to carry out their assigned responsibility efficiently. The
company is focused in adding a reasonable approach to contribute to their environment
preservation policy. In this regards a sustainability factor is being considered by the board in
acquiring new vehicles for the employee who are deserving. Thus two vehicles Tesla X series
100D (www.tesla.com/en_AU/modelx) and BMW 6 series 640 i drive
(configure.bmw.com.au/en_AU) is considered by the company for its appraisal program. A
cost-benefit analysis and a sensitivity analysis is conducted in this report for the company to
decide upon which vehicle to be purchased. As the board is focused in cost along with the
environment sustainable factor.
Discussion:
Tesla X model 100D VS BMW 6 Series 640i X drive:
The Tesla X model 100 D is an electric car manufactured by the Tesla Company. It
has the next generation technology of electric drive and performance. It has a long range of
performance with a single full charge covering a distance of 575 km. It has the new falcon
wing gate enabling it being a superior luxury car in its price range.
(www.tesla.com/en_AU/modelx)

4ECONOMIC ANALYSIS OF CARS
The BMW 6 series 640i X drive is a luxury car giving superior comfort in the petrol
variant. The car has a mileage of around 12.5 Km Per litre. The car comes with a fascinating
interior quality which is a luxury statement in its class of vehicles.
(configure.bmw.com.au/en_AU).
Assumptions in the Analysis:
The following assumptions were taken when conducting the economic viability
analysis of both the vehicles:
 The discount rate has been assumed to be 13% for both the vehicles.
 All the prices and the charges which are applicable to purchase the vehicle have been
taken from the website of the company.
 The insurance cost has been raised by 15% annually from the year of purchase and is
deemed to be constant for the period of analysis.
 The energy cost of electricity as well as the cost of petrol is deemed to be increased
by 20% annually in Australia.
 The servicing cost of both the vehicle is assumed to be different and the rate of
increase in the cost is considered as 10% annually.
 The parking charge and the salary of the chauffeur is taken the same and the growth
rate is taken as 5% annually.
 The cost of plate fee and the registration charges of the vehicle for the first year is
taken from the respective cars website while from the second year it is assumed and it
is constant throughout the analysis period.
 The trade in cost of the vehicles have been taken as falling at 20% for the Tesla X
model 100 D for a period of 4 years and 10% for the final year.
 The trade in cost for BMW 6 series 640i X drive has been taken as falling at 15%
throughout the five year analysis period.

5ECONOMIC ANALYSIS OF CARS
Cost Analysis of Tesla X model 100 D:
The purchase cost of the car is taken as $124582 as the off road price taken from the
company site and upon adding luxury car tax, local stamp duty, first time registration cost,
plate fee and the local CTP we get the on-road price of the vehicle at around $ 1572020. This
is the cost or the initial investment which is going to incur on the purchase of the vehicle
which is at the beginning of the period. Along with this the cost of insurance is also going to
incur in the beginning of the period (www.tesla.com/en_AU/modelx).
The charges for energy, servicing parking and chauffeur are deemed to occur at the
end of the year. Thus the total purchase cost along with the operating cost and the benefit on
the savings occurring from the use of petrol comes to about $166148 for the first year. The
operating cost for the next analysis period rises and at the end of the 5th year come to about
$15761. The benefits also tend to increase over the analysis period and increase
proportionately.
The older model of Toyota Prius – 2014 is taken as a substitute for the trade in value
of the car. The various values of the car if it is traded at the end each year is calculated and
NPV at the end of each year is calculated. The Equivalent Annual Cost of the five years to
one year is calculated to decide upon the vehicle to purchase. (Redbook.com.au.)
Cost Analysis of BMW 6 Series 640i X drive:
BMW 6 series 640i X drive has an on road purchase price of $157628, this is
inclusive of all the necessary charges which occur at the time of purchase. Since this is a car
which runs on fuel the benefit arising from the saving of fuel is not present. Thus the overall
cost of the year including expense in the first year comes to around $169936
(configure.bmw.com.au/en_AU).

6ECONOMIC ANALYSIS OF CARS
The older model of BMW 6 Series 640i X drive - 2013 is taken as a measure of trade
in value and the sale price at the end of each year is calculated. The NPV of each year is
calculated and the Equivalent Annual Cost is calculated for this vehicle (Redbook.com.au.).
Comparative Analysis:
The purchase cost which does not include the on-road charges is greater for Tesla X
model 100D at $131900 while the cost for BMW 6 series 640i X drive is at $124582. The
delivery fee for the BMW 6 series 640i X drive is $3000 which is greater than the Tesla X
model 100D which charges only $875. The luxury tax is also greater for Tesla while the local
stamp duty and the local CTP is less. Thus overall the cost to purchase the vehicle is at
$157020 for Tesla and it costs around $157628 for the BMW ( Daziano, Sarrias and Leard
2017).
The operating cost is also higher for the BMW at $12308 for the first year and it is
increasing in the next years. The majority of the operating cost for BMW is contributed by
the cost of fuel which is around $4520 for the first year and it keeps on increasing in the
subsequent years. Thus it leads to make the total initial investment of the vehicle at $169936.
Tesla has a lower operating cost at around $10881 and it is further reduced by the benefit
from the saving on petrol by $1752. Thus the total purchasing cost of the Tesla comes to
about $166148. ( Daziano, Sarrias and Leard 2017).
The present value of the total cost of the Tesla including all the operating cost and
benefits comes to around $183289, while the present value of the total cost of BMW comes
to about $202682. Thus in comparing the present value of the cost of the two vehicles Tesla
seems to be more appropriate as it is economically viable along with being sustainable for the
environment. (Li,Gong and Peng 2018)

7ECONOMIC ANALYSIS OF CARS
The car taken for the trade in for Tesla is taken as a Toyota Prius -2014 model, the
present value of the car if sold is given in the table below,
Years Amount
If sold in the first year purchase. 117627
If sold after two years of purchase. 78071
If sold after three years of purchase. 46059
If sold after four years of purchase. 20380
If sold after five years of purchase. 9017
The car taken for the trade in for the BMW is a BMW model 6 series 640i X drive-
2013 , the present value of the car sold is given below in the table,
Years Amount
If sold in the first year purchase. 127828
If sold after two years of purchase. 93159
If sold after three years of purchase. 64776
If sold after four years of purchase. 41690
If sold after five years of purchase. 18446
Thus on analysing the value of the trade- in of the cars we observe that the selling
price for the BMW older model is greater than the Toyota Prius which is taken as an
alternative in our analysis. Thus on the basis of present value of trade-in the purchase of
BMW 6 series model seems to be favourable for the company on the cost basis. However it
will not fulfil the need of the company to sustain for the environment (Schuster, C.E., 2019).

8ECONOMIC ANALYSIS OF CARS
After the calculation of the Present value of the total cost and the present value of the
trade in value of the vehicle the Net Present Value of the vehicles are tabulated according to
the year in which they are sold and is given below,
Years Net Present Value of Tesla Net Present Value of BMW
2019 65662 74854
2020 105218 109522
2021 137230 137906
2022 162909 160992
2023 174271 184235
All the Net Present Value of both the vehicles is negative indicating a cost rather than
benefit, but the lowest cost is exhibited by the Tesla and the BMW is becoming expensive in
our analysis.
The equivalent annual cost is calculated to observe the yearly charges which is going
to be incurred by the company on the purchase of the vehicles. The tabulated data on the
equivalent cost is presented below,
Years Equivalent Annual cost
Tesla
Equivalent Annual cost
BMW
If held for five years 49548 52380
If held for four years 54769 54124
If held for three years 58119 58406
If held for two years 63076 65657
If held for one years 74198 84585

9ECONOMIC ANALYSIS OF CARS
As it is seen by the Equivalent Annual Cost, the cost to purchase and maintain the
Tesla is economically more viable in all the scenarios presented above in the table. Thus
purchasing either of the vehicle if held for three years would create an indifferent result for
the company economically. The most economic profit is derived when the company
purchases the Tesla for one year. The company should buy the BMW if its holding period is
around four years. (Moulton, and Mao 2019)
Sensitive analysis of the Project:
As the discount rate taken in this project is 13%, a sensitivity analysis is undertaken at
10% and 15% to study the impact on the NPV and the Equivalent Annual Cost of the
vehicles.
Years NPV at 13% NPV at 10% NPV at 15% EAA at
13%
EAA at
10%
EAA at
15%
2019 65662 71676 61855 49548 46900 50107
2020 105218 106916 104103 54769 52454 54799
2021 137230 143244 133422 58119 57600 58436
2022 162909 166274 156452 63076 61604 64035
2023 174271 177789 167967 74198 78844 71133
The above table tabulates the NPV and the Equivalent Annual Cost of the Tesla
Model X series 100D.
Years NPV at
13%
NPV at
10%
NPV at
15%
EAA at
13%
EAA at
10%
EAA at
15%
2019 74854 89366 77954 52380 52205 55631
2020 109522 125409 121166 54124 58715 61194
2021 137906 162565 151154 58406 65370 66202

10ECONOMIC ANALYSIS OF CARS
2022 160992 186120 174709 65657 72259 74531
2023 184235 197898 186486 84585 98302 89648
The above table tabulates the data for the NPV and Equivalent Annual Cost of the
BMW 6 series 640i X drive at the different discount rates. (Iooss, and Lemaître 2015)
Conclusion:
In the above assessment it is concluded that the company should purchase the Tesla
Model X 100D for its employees as the Equivalent Annual cost of the vehicle is low for the
first year and benefits the company when compared to the BMW 6 series 640i X drive. The
NPV of the Tesla model X 100D is negative and hence signifies the cost also which is lowest
for the company. The car being an electric drive also fulfils the company policy of
sustainability for the environment. The savings on petrol also benefits the company by the
purchase of this vehicle. The sensitivity analysis of the discount rate also signifies and shows
the economic viability to purchase the Tesla Model X 100D. Thus it is concluded in this
report that the company should purchase the Tesla Model X 100D for its employees.

11ECONOMIC ANALYSIS OF CARS
References:
Configure.bmw.com.au. (2019). Configurator. [online] Available at:
https://configure.bmw.com.au/en_AU/configure/G32/JV22/FLCFK,P0300,S021F,S02
58,S02NH,S02TB,S02VR,S0316,S0322,S0337,S0346,S0402,S0423,S0428,S0431,S0
459,S0465,S0481,S0488,S0494,S04AW,S04LQ,S04T8,S04UR,S0534,S0552,S05AC,
S05AL,S05AT,S05DN,S0609,S0610,S0654,S0688,S06AC,S06AE,S06AK,S06AM,S
06AN,S06AP,S06NS,S06WB,S0710,S0715,S0775,S07S9,S08TH [Accessed 8 Sep.
2019].
Daziano, R.A., Sarrias, M. and Leard, B., 2017. Are consumers willing to pay to let cars drive
for them? Analyzing response to autonomous vehicles. Transportation Research Part
C: Emerging Technologies, 78, pp.150-164.
DeGeest, D.S., Follmer, E.H., Walter, S.L. and O’Boyle, E.H., 2017. RETRACTED: The
Benefits of Benefits: A Dynamic Approach to Motivation-Enhancing Human
Resource Practices and Entrepreneurial Survival. Journal of Management, 43(7),
pp.2303-2332.
Horowitz, K.A., Woodhouse, M., Lee, H. and Smestad, G.P., 2015, September. A bottom-up
cost analysis of a high concentration PV module. In AIP Conference
Proceedings (Vol. 1679, No. 1, p. 100001). AIP Publishing.
Horowitz, K.A., Woodhouse, M., Lee, H. and Smestad, G.P., 2015, September. A bottom-up
cost analysis of a high concentration PV module. In AIP Conference
Proceedings (Vol. 1679, No. 1, p. 100001). AIP Publishing.