Discussion and Recommendation of the Case Study

This document discusses and provides recommendations for a case study on project development and optimization. The case study focuses on a construction company and its need for an effective strategy and plan to assist employees in traveling to a regional office. The document analyzes four options and calculates the net present value for each option to determine the most effective choice. The conclusion suggests that purchasing an old car is the best option for the company.

Running head: PROJECT DEVELOPMENT AND OPMIZATION
Project Development and Optimization
Name of the Student:
Name of the University:
Author’s Note:

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Discussion and Recommendation of the Case Study
The assessment is done for the concerned company named as ABC Company that is
associated with construction work. As per the case study, it is seen that the company has received
a new contract for 5 years that is 31kms away from the head office of the company. In order to
maintain effective coverage among the area where the construction would be done, a regional
office has been constructed.
However, the problem lies with the availability of the experienced employees within the
regional office within the time when the construction would be done. In order to assist the
employees to travel to the regional office, the organization is in need of an effective strategy and
plan.
The company has four options out of which the one that is effective and ideal for them
will be taken into consideration. The first option that can be selected by the company is
purchasing a new car and using the same in order to assist the employees for the travelling
purpose.
The second option constitutes of purchasing an old car and using it for the same purpose.
The company can even hire a car and use it till the time when the project is complete. The fourth
and the final option that is in hand is providing travel allowance to the employees so that they
can accommodate their own transport and travel to the spot.
The merits and the demerits have been highlighted in the case study and it is seen that all
the options have their own pros and cons. The merits and the demerits of all the four situations
have been analysed and in order to figure out the most effective option, the cash flow for all the

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options have to be calculated. Net Present Value is the most effective process to figure out the
plan that can be utilised by the company in order to gain the best value.
The calculations that have been figured out by the company have been done on the basis
of certain assumptions. It is seen that the inflation rate has been considered as 2.50% and the
depreciation of new car is 15% pa and that of an old car is 20% pa. The tax rate is considered to
be 30% and the discounted rate is 9%.
The net present value that is calculated for the purchase of a new car is $12, 263 and that
of purchasing an old car is $ 31,772. In case a rental car is considered, then the value of NPV is
$2,225.
Cash Flow & NPV for New Car Purchase:
Particulars 0 1 2 3 4 5
Cost of New Car ($36,500)
Initial Investment ($36,500)
Insurance ($1,001) ($1,026) ($1,052) ($1,078) ($1,105)
Rego ($1,150) ($1,179) ($1,208) ($1,238) ($1,269)
Maintenance ($600) ($615) ($630) ($646) ($662)
Fuel Consumption ($1,882) ($1,929) ($1,977) ($2,027) ($2,077)
Depreciation ($5,475) ($5,475) ($5,475) ($5,475) ($5,475)
Savings of Travel Allowance $19,500 $19,988 $20,487 $20,999 $21,524
Net Incremental Income/(Expenses) $9,392 $9,764 $10,145 $10,535 $10,935
Less: Income Tax ($2,818) ($2,929) ($3,043) ($3,161) ($3,281)
Net Operating Income/(Expenses) $6,574 $6,835 $7,101 $7,375 $7,655
Add: Depreciation $5,475 $5,475 $5,475 $5,475 $5,475
Net Operating Cash InFlow/(Outflow) $12,049 $12,310 $12,576 $12,850 $13,130
Net Cash Flow ($36,500) $12,049 $12,310 $12,576 $12,850 $13,130
Discounted Cash Flow ($36,500) $11,054 $10,361 $9,711 $9,103 $8,533
Net Present Value $12,263

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Cash Flow & NPV for Used Car Purchase:
Particulars 0 1 2 3 4 5
Cost of New Car ($12,000)
Initial Investment ($12,000)
Insurance ($900) ($923) ($946) ($969) ($993)
Rego ($1,150) ($1,179) ($1,208) ($1,238) ($1,269)
Maintenance ($800) ($820) ($841) ($862) ($883)
Fuel Consumption ($2,275) ($2,332) ($2,390) ($2,450) ($2,511)
Depreciation ($2,400) ($2,400) ($2,400) ($2,400) ($2,400)
Savings of Travel Allowance $19,500 $19,988 $20,487 $20,999 $21,524
Net Incremental Income/(Expenses) $11,975 $12,334 $12,703 $13,080 $13,467
Less: Income Tax ($3,593) ($3,700) ($3,811) ($3,924) ($4,040)
Net Operating Income/(Expenses) $8,383 $8,634 $8,892 $9,156 $9,427
Add: Depreciation $2,400 $2,400 $2,400 $2,400 $2,400
Net Operating Cash InFlow/(Outflow) $10,783 $11,034 $11,292 $11,556 $11,827
Net Cash Flow ($12,000) $10,783 $11,034 $11,292 $11,556 $11,827
Discounted Cash Flow ($12,000) $9,892 $9,287 $8,719 $8,187 $7,687
Net Present Value $31,772
Cash Flow & NPV for Rental Car:
Particulars 0 1 2 3 4 5
Intital Deposit ($34,668)
Initial Investment ($34,668)
Insurance ($4,674) ($4,791) ($4,911) ($5,033) ($5,159)
Fuel Consumption ($1,882) ($1,929) ($1,977) ($2,027) ($2,077)
Savings of Travel Allowance $19,500 $19,988 $20,487 $20,999 $21,524
Net Incremental Income/(Expenses) $12,944 $13,268 $13,599 $13,939 $14,288
Less: Income Tax ($3,883) ($3,980) ($4,080) ($4,182) ($4,286)
Net Operating Income/(Expenses) $9,061 $9,287 $9,520 $9,757 $10,001
Add: Depreciation $0 $0 $0 $0 $0
Net Operating Cash InFlow/(Outflow) $9,061 $9,287 $9,520 $9,757 $10,001
Net Cash Flow ($34,668) $9,061 $9,287 $9,520 $9,757 $10,001
Discounted Cash Flow ($34,668) $8,313 $7,817 $7,351 $6,912 $6,500
Net Present Value $2,225

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By comparing the NPV of the above three situations, it is seen that purchasing an old car
is ideally suited for the company as this would yield them the maximum amount of profit and
result. The fourth and the last option constituting of travel allowance is not taken into
consideration mainly due to the fact that by looking into its merits and demerits, the expenses of
the company would be very much high. Therefore, the assessment of the options clarifies the fact
that purchasing an old car is suitable for the company because this would assist the company in
gaining the optimum results as the expenses will be lower than that of the income that is incurred
from the construction project.

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