Concept of Terotechnology, Capital Investment Analysis, Gaps in life cycle costing

This document discusses the concept of Terotechnology, capital investment analysis, and gaps in life cycle costing. It provides recommendations for optimizing CAPEX and OPEX, maximizing facility performance, and minimizing time-to-first-production. The document also explains the idea of annual worth, present value, and internal rate of return. It concludes with a discussion on the conventional benefit-cost ratio and the modified cost-benefit ratio.

MREGC5001Assignment22019
Name of the Student
Name of the University
Author Note

Table of Contents
Answer to question 1....................................................................................................5
Concept of Terotechnology.......................................................................................5
Capital Investment Analysis......................................................................................5
Gaps in life cycle costing..........................................................................................6
Recommendations....................................................................................................7
Answer to question 2....................................................................................................7
Answer to question 3....................................................................................................9
Answer to question 4..................................................................................................11
Answer to question 5..................................................................................................12
Reference...................................................................................................................14

Answer to question 1
Concept of Terotechnology
This particular research work was intended about exhibiting some philosophical
thoughts for the future improvement of terotechnology as order inside the general
field of industrial management. Likewise, some general ideas are proposed in
regards to the conceivable future advancement of life-cycle costing as a strategy
inside the broad area of monetary assessment and examination for built frameworks.
A few proposals for further research work are likewise made.
Of the many conclusions drawn by the Maddock Report, the most noteworthy in the
advancement of terotechnology was aimed about three important plant qualities and
the board capacities that is, consistent quality, viability and the criticism of data to
planners. The idea of terotechnology can be characterized as the innovation of
establishment, authorizing, substitution and expulsion of plant, hardware, and gear,
of input to structure and activity thereof, and related subjects and practices.
Farinha (2018) has expressed that Terotechnology is a between the disciplinary
matter" and Atkinson depicted terotechnology as a between disciplinary issue,
including transaction among electrical and electronic building, mechanical designing,
structural designing and so on. The underlying perplexity communicated in the
Department of Industry booklets appears to have prompted some disarray in writing.
Nonetheless, this survey has demonstrated that most of the creators take the view
that terotechnology is a multi-disciplinary innovation. In this manner, this is the view
which will be communicated all through this exploration work.
Capital Investment Analysis
Capital speculation choices that include the buy of things, for example, land,
apparatus, structures, or hardware are among the most significant decisions
attempted by the business administrator. These choices regularly include the
responsibility of substantial aggregates of cash, and they will influence the business
over various years. Besides, the assets to buy a capital thing must be paid out
promptly, while the payor advantages accumulate after some time. Since the
benefits depend on future occasions and the capacity to anticipate what's to come is
defective, you should endeavor to assess venture choices as altogether as could
reasonably be expected. The most significant assignment of speculation examination

is gathering the fitting information. The methodology examined in this production
show you how to assess the choice, yet on the off chance that you have wrong or
fragmented data, at that point a generally intensive and complete investigation will
delude. Choosing ventures that will improve the money related execution of the
business includes two important undertakings: 1) monetary productivity examination
and 2) budgetary plausibility investigation. The financial benefit will appear if an
option is financially beneficial. In any case, speculation may not be monetarily
achievable: that is, the money streams might be inadequate to make the required
main and premium installments.
Gaps in life cycle costing
Foundation ventures are the impetus that drives financial development. Concrete
foundation, for example, streets, ports, rail, interstates, airplane terminals, power and
water supply are required for the transportation of merchandise, individuals
portability, guaranteeing the creation of makers thus many other days by day
exercises.
Foundation, much the same as different sorts of capital consumption, will end up out
of date following quite a while of persistent utilization and introduction to mixed-use
and natural components (CONTUK, 2018). To proceed with the activities, these
maturing framework will require intermittent support, modernization, and substitution
in whole or parts. By and large, the yearly use on upkeep and modernization would
regularly running from 2% to 20% or all the more relying upon different elements by
the size, nature, limit yet in addition including their for reason, plan, materials, quality
of development and above all, the manner in which it works and keeps up. These
OPEX things are consumptions over a time of 20 to 30 years or more! It is
profoundly conceivable that the capital spending on a foundation for an incredible
duration cycles to be significantly more than the underlying capital consumption to
assemble it. Furthermore, we don't see enough of this investigation being done when
we are building our advantage, city venture.
There is a basic need to investigate this and improve the use to be spent on the
framework for an incredible duration cycle. Life-Cycle Cost Analysis (LCCA) is
especially useful in this circumstance to guarantee the cost-viability of a foundation
venture. LCCA is a device to decide the most practical choice among various
contending choices to buy, possess, work, keep up and, at long last, discard an

article or procedure when each is similarly fitting to be actualized on specialized
grounds. The LCCA thinks about every one of the expenses acquired in the life-cycle
of the foundation, and this alludes to the savviest choice to manufacture, work, keep
up and decommission the framework (Djurović et al. 2015).
To provide further clearness, for a thruway asphalt, notwithstanding the underlying
development cost, LCCA considers all the client costs, (e.g., decreased limit at work
zones), and organization costs identified with future exercises, including future
occasional upkeep and recovery. Every one of the expenses is typically limited and
aggregate to present-day esteem known as net present esteem (NPV). A life-cycle
model is generally joined with the complete loss of possession to give a
progressively comprehensive and far-reaching costing model to the engineer or all
the more the proprietor of the framework resource (Wijnia, 2016).
To give sureness in Asset Performance, it's critical to supplant the advantages at the
ideal time following great practice, association strategy, and producer's proposals.
Along these lines, a compelling capital arranging to precede the real expense
brought about can improve the productivity in the use of time and assets. Cost
reserve funds can likewise be because of the institutionalizing of way to deal with
acquiring, smoothening out of expenses, and out of date quality through the
acquirement of advantages through inventory network accomplices. The point is
added to improve the partner's certainty as a diminished vulnerability in cost
arranging can prompt better resource execution and lessening the interruption and
dangers to the business.
Recommendations
 Optimize the harmony between CAPEX and OPEX dependent on accurate
information as opposed to subjectivity
 Maximize the exhibition of the office and limit the danger of disappointment
through guaranteeing that the plan consolidates ideal operability, unwavering
quality, and viability attributes
 Minimize time-to-first-creation through successful charging approaches
 Ensure vitality productive or 'green' working at excellent Life Cycle Cost with
no wellbeing or creation related trade-offs

Answer to question 2
Idea of Annual worth:
Annual worth (AW) is an investigation system dependent on the idea of
equivalencies. Annual worth is standardizes resources, which permits examination of
advantages with definitely various attributes, (for example, life expectancy,
introductory expense, and adjusting cost). AW changes over rising and falling
expenses of a speculation over a given timeframe into a steady expense for each
year esteem.
Present worth:
Present worth (PW) investigation is a comparability strategy for examination of
speculation choices in which an undertaking's money streams are displayed as a
solitary present esteem. PW is a standout amongst the most fundamental and
proficient strategies accessible for deciding the adequacy of a venture on a financial
premise.
Internal rate of return:
The IRR can be characterized as the rebate rate which, when connected to the
money streams of a venture, delivers a net present esteem (NPV) of nil. This
markdown rate would then be able to be thought of as the figure return for the
undertaking. On the off chance that the IRR is more prominent than a pre-set rate
focus on, the undertaking is acknowledged. On the off chance that the IRR is not
exactly the objective, the venture is rejected.

Given:
Minimum attractive after-tax rate of return 10.00%
Life expectancy 6
Salvage value 5.00%
Annual Contact of Supply 5000 units
Sales Price per unit ($P) $10.00
Degree of automation A B C D
First cost ($I) $85,000.00 $79,000.00 $76,500.00 $78,500.00
Annual labour cost ($L) $25,000.00 $21,000.00 $20,000.00 $21,000.00
Annual power and maintenance cost($M) $1,100.00 $900.00 $1,000.00 $1,000.00
Present Worth Method
Salvage value at year 6 (S) $4,250.00 $3,950.00 $3,825.00 $3,925.00
Annuity (A) $23,900.00 $28,100.00 $29,000.00 $28,000.00
Principal Amount (P) $85,000.00 $79,000.00 $76,500.00 $78,500.00
Present Worth Factor (P/F) 0.56447393005 0.56447393005 0.56447393005 0.56447393005
Annuity Factor (P/A) 4.35526069946 4.35526069946 4.35526069946 4.35526069946
Present Worth (PW) $21,489.74 $45,612.50 $51,961.67 $45,662.86
Annual Worth Method
Salvage value at year 6 (S) $4,250.00 $3,950.00 $3,825.00 $3,925.00
Annuity (A) $23,900.00 $28,100.00 $29,000.00 $28,000.00
Principal Amount (P) $85,000.00 $79,000.00 $76,500.00 $78,500.00
Sinking Fund Factor (A/F) 0.12960738036 0.12960738036 0.12960738036 0.12960738036
Capital Recovery Factor (A/P) 0.22960738036 0.22960738036 0.22960738036 0.22960738036
Annual Worth(AW) $4,934.20 $10,472.97 $11,930.78 $10,484.53
Internal Rate of Return (IRR)
Investment Year 1 Year 2 Year 3 Year 4
A -$85,000.00 $23,900.00 $23,900.00 $23,900.00 $23,900.00
B -$79,000.00 $28,100.00 $28,100.00 $28,100.00 $28,100.00
The all four methods solved have shown that C will be the best choice.
Answer to question 3
The conventional benefit cost ratio of a venture is referenced as pursues;
The disbenefits related with the undertaking are subtracted from the advantages in
the numerator of the proportion to acquire the net advantage related with the
venture. Thus the proportional worth of rescue estimation of the underlying venture is
subtracted from comparable worth of expense in the denominator of the proportion.
The complete expense basically comprises of beginning cost (introductory capital
speculation) in addition to the working and upkeep cost.

In the modified cost benefit ratio strategy, the working and upkeep cost is subtracted
from the advantages in the numerator of the proportion. At the end of the day,
working and support cost is viewed as like the disbenefits. The articulation for
adjusted advantage cost proportion utilizing PW, AW or FW is given as pursues;
Given Information
MARR 10%
Life Expectancy 10 years
Machine A Machine B
First Cost $20,000.00 $30,000.00
Salvage Value $2,000.00 $0.00
Annual Receipts $120,000.00 $150,000.00
Annual Disbursements $110,000.00 $140,000.00
Machine A Machine B
Discounted Benefits Discounted Costs Discounted Benefits Discounted
Year 1 $109,090.91 $100,000.00 $136,363.64 $127,272
Year 2 $99,173.55 $90,909.09 $123,966.94 $115,702
Year 3 $90,157.78 $82,644.63 $112,697.22 $105,184
Year 4 $81,961.61 $75,131.48 $102,452.02 $95,621
Year 5 $74,510.56 $68,301.35 $93,138.20 $86,928
Year 6 $67,736.87 $62,092.13 $84,671.09 $79,026
Year 7 $61,578.97 $56,447.39 $76,973.72 $71,842
Year 8 $55,980.89 $51,315.81 $69,976.11 $65,311
Year 9 $50,891.71 $46,650.74 $63,614.64 $59,373
Year 10 $47,036.28 $42,409.76 $57,831.49 $53,976
From the above calculations, it can be said that selection of machine A will be
effective decision over machine B basis BCR approach.

Answer to question 4 Annual After-tax Cash Flow (ATCF’s)
Years Lease cost Other cost Total cost Tax benefit(30%) After Tax Cash Flow(ATCF)
1 $70,000.00 $3,000.00 $73,000.00 $21,900.00 $51,100.00
2 $60,000.00 $3,000.00 $63,000.00 $18,900.00 $44,100.00
3 $50,000.00 $3,000.00 $53,000.00 $15,900.00 $37,100.00
4 $50,000.00 $3,000.00 $53,000.00 $15,900.00 $37,100.00
5 $50,000.00 $3,000.00 $53,000.00 $15,900.00 $37,100.00
6 $50,000.00 $3,000.00 $53,000.00 $15,900.00 $37,100.00
7 $50,000.00 $3,000.00 $53,000.00 $15,900.00 $37,100.00
8 $50,000.00 $3,000.00 $53,000.00 $15,900.00 $37,100.00
9 $50,000.00 $3,000.00 $53,000.00 $15,900.00 $37,100.00
10 $50,000.00 $3,000.00 $53,000.00 $15,900.00 $37,100.00
Count 10
Sum of PV at 10% = $246,475.84
PVIFA at 10% for 10 yrs 6.14
Equivalent annual cost = $40,112.81

Answer to question 5
Machine X
Machine Y
Machine Z
MARR 10%
Book value of Machine X ($M) $35,000.00
Planning Horizon (K) 8 years
Annual operating and maintenance costs of Machine X ($P) $16,000.00
Trade-in allowance for Machine X while purchasing Y ($Q) $22,000.00
Original Purchasing price of Machine Y excluding Q($R) $115,000.00
Salvage Value of Y($S) $25,000.00
Annual operating and maintenance costs of Machine Y ($T) $8,500.00
Purchasing Price of Machine Z($U) $120,000.00
Salvage Value of Z($V) $29,000.00
Annual operating and maintenance costs of Machine Z ($W) $7,900.00
Case 1: Proceed with Machine X
Year 0 Year 1
Initial Cost $35,000.00
Annual operating and maintenance costs of Machine X ($P) $16,000
PV Factor 0.909090909
Present Value of Operating cost $14,545
Total Cost $120,358.82
PVIFA at 10% for 10 yrs 5.33
EAC $22,560.54
Case 2: Replace X with Y
Year 0 Year 1
Initial Cost $93,000.00
Annual operating and maintenance costs of Machine Y ($T) $8,500
Salvage Value
PV Factor 0.909090909
Present Value of Operating cost $7,727
Total Cost $33,684.19
PVIFA at 10% for 10 yrs 5.33
EAC $6,313.90
Case 3: Replace X with Z
Year 0 Year 1
Initial Cost $120,000.00
Annual operating and maintenance costs of Machine Z ($W) $7,900
Salvage Value
PV Factor 0.909090909
Present Value of Operating cost $7,181
Total Cost $28,617.20
basis the above calculations, it can be concluded that if before tax figures are taken
into account then replacing X with Z will be the most feasible solution.

Reference
CONTUK, F.Y., 2018. Product Life Cycle Costing Method: A General Evaluation.
Social Sciences Researches in the Globalizing World, p.744.
Djurović, D., Bulatović, M., Soković, M. and Stoić, A., 2015. Measurement of
maintenance excellence. Tehnički vjesnik, 22(5), pp.1263-1268.
Farinha, J.M.T., 2018. Asset Maintenance Engineering Methodologies. CRC Press.
Wijnia, Y., 2016. Towards Quantification of Asset Management Optimality. In
Proceedings of the 10th World Congress on Engineering Asset Management
(WCEAM 2015) (pp. 663-670). Springer, Cham.