CHL Health Pty Ltd: Corporate Finance Vehicle Fleet Analysis Report

This report provides a financial analysis of vehicle fleet options for CHL Health Pty Ltd, a subsidiary of Cunningham Holdings Limited. The analysis aims to minimize vehicle maintenance and running costs while incorporating a sustainability objective. The report examines four vehicle models: Tesla Model X 100D, BMW 6 series, Audi SQ7, and Mercedes Benz CLS 63. It includes detailed cost breakdowns for each model, including purchase price, registration, insurance, annual maintenance, and variable costs like petrol/electricity, insurance, security, cleaning, and tax. The analysis calculates the Net Present Value (NPV) of purchase costs, operating costs, and trade-in values over a six-year period, using a 10% discount rate. The report calculates the equivalent annual cost for each vehicle to determine the most cost-effective option. The findings indicate that the Audi SQ7 has the lowest annual equivalent cost, making it the recommended choice for the company's fleet management services. The report concludes that the Audi SQ7 is the most economical option, aligning with the company's goal of minimizing operating costs.

Running head: CORPORATE FINANCE
Corporate Finance
Name of the Student:
Name of the University:
Authors Note:

CORPORATE FINANCE
Executive summary:
The importance of conducting cost benefit analysis is essential for an organization to use most
economical and beneficial methods and means of running an organization. An organization has
to incur different types of costs to conduct its business operations. One such costs is acquisition
and maintenance of vehicle. In this document a brief analysis on the different models of vehicles
available for fleet maintenance services in CHL Health Pty Limited shall be made with the
objective of minimizing the cost of such services.

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Contents
Executive summary:........................................................................................................................1
Introduction:....................................................................................................................................3
Different models of vehicles available to the company for its purpose:.........................................3
Annual maintenance cost:............................................................................................................4
Other variable costs related to the use of the vehicles by the company:.....................................5
Decision of vehicle model:............................................................................................................14
Conclusion and Recommendation:................................................................................................15
References:....................................................................................................................................17

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Introduction:
CHL Health Pty Ltd is a fully owned subsidiary of Cunningham Holdings Limited. The company
requires significant number of vehicles for the purpose of staff and executive visits to the
expanding suits of aged-care home in different parts of the country. The company with one eye
on reducing the cost of operations to achieve sustainable growth in the future is looking to
minimize the cost of vehicle maintenance and running services in the company. A brief
discussion on different vehicles available to the company for its executive and staffs to visit
aged-care homes and which of these model will minimize the equivalent annual cost of vehicle is
explained below.
Different models of vehicles available to the company for its purpose:
Tesla Model X 100D
This is one of the models chosen for the purpose of the company as it would help the company to
reduce the operating costs in the future (Mahto and Davis, 2012).
BMW 6 series
BMW series 6 has been selected as one of the models as it very comfortable and suitable for the
purpose of the company. The company wants to make sure that it does not compromise with the
comfort of its staffs and executives thus, the model of vehicles should at-least make sure there is
no problem of comfort to the executives and staffs. Accordingly, even if an economic model of
vehicle is chosen the vehicle must be at-least of such quality to provide necessary comfort to the
executives and staffs of CHL Health Pty Ltd (Liu, 2010).
Audi SQ 7:

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Audi SQ 7 is again another model suitable as per the needs of the company since the price of the
company is quite low and the car has long useful life (Niles, 2011).
Mercedes Benz CLS 63:
CLS 63 has a long useful life and low maintenance cost hence, it is suitable to the purpose of the
company of reducing its operating cost in the future.
All amounts are in US$
Particulars Tesla Model X 100D BMW 6 series Audi SQ 7 Mercedes Benz
CLS 63
Car price 140,000.00 139,000.00 130,000.00 120,000.00
Registration 6,000.00 6,000.00 6,000.00 6,000.00
Insurance 14,000.00 13,900.00 13,000.00 12,000.00
Total cost to buy 160,000.00 158,900.00 149,000.00 138,000.00
Annual maintenance cost:
Particulars Tesla Model X
100D
BMW 6
series
Audi SQ
7
Mercedes Benz CLS
63
Annual maintenance costs
Year 1 4,0
00.00
5,00
0.00
3,000.
00
4,5
00.00
Year 2 4,4
00.00
5,50
0.00
3,300.
00
4,9
50.00
Year 3 4,8
40.00
6,05
0.00
3,630.
00
5,4
45.00
Year 4 5,3
24.00
6,65
5.00
3,993.
00
5,9
89.50
Year 5 5,8
56.40
7,32
0.50
4,392.
30
6,5
88.45
Year 6 6,4
42.04
8,05
2.55
4,831.
53
7,2
47.30
Year 7 5,314.
68
Year 8 5,846.

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15
Other variable costs related to the use of the vehicles by the company:
Particulars Tesla Model X 100D BMW 6
series
Audi SQ 7 Mercedes
Benz CLS 63
Car price 140,000.00 139,000.00 130,000.00 120,000.00
Expected useful life 15 15 18 15
Variable costs:
Petrol 28,000.00 30,580.00 28,600.00 28,800.00
Electricity 2,500.00 2,700.00 2,800.00 2,100.00
Insurance 7,000.00 6,500.00 6,500.00 6,000.00
security 2,500.00 2,500.00 2,500.00 2,500.00
cleaning 1,000.00 1,000.00 1,000.00 1,000.00
Tax 500.00 450.0
0
400.0
0
350.0
0
Total annual variable costs 41,500.00 43,730.00 41,800.00 40,750.00
Return on disposal:
Tesla:
0 Petrol Electricit
y
Insuranc
e
Security Cleanin
g
tax Maintenanc
e
1 112,000.
00
28,00
0.00
2,500
.00
7,000.
00
2,50
0.00 1,000.00 500.0
0
4,000.00
2 84000 28,00
0.00
2,500
.00
7,000.
00
2,50
0.00 1,000.00 500.0
0
4,400.00
3 56000 28,00
0.00
2,500
.00
7,000.
00
2,50
0.00 1,000.00 500.0
0
4,840.00
4 28000 28,00
0.00
2,500
.00
7,000.
00
2,50
0.00 1,000.00 500.0
0
5,324.00
5 14000 28,00
0.00
2,500
.00
7,000.
00
2,50
0.00 1,000.00 500.0
5,856.40

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0
6 0 28,00
0.00
2,500
.00
7,000.
00
2,50
0.00 1,000.00 500.0
0
6,442.04
Year Disposal
value
Total Net proceed PV factor @10% pa Present value
1 112,000.00 45,500.
00
66,500.00 0.91 60,454.55
2 84,000.00 45,900.
00
38,100.00 0.83 31,487.60
3 56,000.00 46,340.
00
9,660.00 0.75 7,257.70
4 28,000.00 46,824.
00
(18,824.00) 0.68 (12,857.05)
5 14,000.00 47,356.
40
(33,356.40) 0.62 (20,711.70)
6
-
47,942.
04
(47,942.04) 0.56 (27,062.03)
Note:
Assuming that the company will get 80% of purchase value at the end of year 1 and thereafter
the percentage will reduced by 20% each year except in the 6th year where the percentage of
disposal value shall be reduced by 10% only (O’Shannassy, 2015).
Equivalent annual cost:
Calculation of annual equivalent cost shall be determined to assess which of the models will
have lowest annual equivalent cost. Generally the consideration for any organization is to
minimize the cost of operations of business. Thus, the model which will end up minimizing the

CORPORATE FINANCE
annual equivalent cost shall be considered for the fleet purpose in the company. On the basis of
information about the price of these different models and assuming certain matters regarding the
annual operating costs and disposal price of these cars at the end of each useful year let us
calculate the annual equivalent cost for the company (Kavanagh, 2014).
Tesla:
Year 1
.00
2
.00
3 4 5 6
NPV of
purchase cost
127,272.
73
115,702.
48
105,184.
07
95,621.
88
86,928.
99
79,026
.35
NPV of
operating costs
41,363.
64
37,933.
88
34,815.
93
31,981.
42
29,404.
60
27,062
.03
NP of Disposal
value
101,818.
18
69,421.
49
42,073.
63
19,124.
38
8,692.
90
Total NPV 66,818.
18
84,214.
88
97,926.
37
108,478.
93
107,640.
69
106,088
.38
4
.36
3
.45
2
.62
1
.94
1
.32 0.75
Equivalent
annual cost
15,341.
95
24,437.
24
37,380.
42
56,011.
96
81,806.
97
141,203
.64
From the above computation of annual equivalent cost it is pretty clear that the annual equivalent
cost continue to increase with each passing year. This is mainly because the rapid reduction in
disposal price and increase in annual maintenance cost of the vehicle. Annual equivalent cost in
first year is expected to be $ 15,341.95 which shall increase to $141,203.64 by the end of 6th year
in case of Tesla model (Johnsen, 2015). ,
BMW:
On the basis of information provided about the purchase price, operating costs, maintenance and
disposal value of the vehicle the following table has been prepared containing annual equivalent
cost of the vehicle to the company.

CORPORATE FINANCE
Year 1.
00
2.
00
3 4 5 6
Purchase
price
158,900.0
0
158900 158900 158900 158900 158900
Operating
costs
48,730.0
0
49,230.0
0
49780 50,385.0
0
51,050.
50
51,782.
55
Disposal
value
135,065.0
0
111,230.0
0
79,450.0
0
63,560.0
0
47,670.
00
39,725.
00
Total 72,565.0
0
96,900.0
0
129,230.0
0
145,725.0
0
162,280.
50
170,957.
55
PV factor 0.90909090
9
0.82644628
1
0.75131480
1
0.68301345
5
0.6209213
2
0.56447393
Total
NPV
65,968.1
8
80,082.6
4
97,092.4
1
99,532.1
4
100,763.
42
96,501.
08
4.35526069
9
3.44616979 2.61972350
9
1.93671005
4
1.3157887
3
0.75131480
1
Annual
equivale
nt cost
15,146.7
8
23,238.1
6
37,062.0
8
51,392.3
8
76,580.
24
128,442.
94
The annual equivalent cost of BMW model is quite low as compared to the annual equivalent
cost of Tesla. The annual equivalent cost of BMW is $15,146.78 in year 1 shall increase to
$128,442.94 in year 6. This means the annual equivalent cost of BMW is significantly low than
the annual equivalent cost of Tesla (Conceptual Issue, 2013).
Audi:
On the basis of purchase price, operating costs, maintenance cost and disposal value at the end of
each useful year the annual equivalent cost of Audi is calculated in the table below.
Audi
Year
1.00 2.00
3 4 5 6 7 8
Purcha
se
price
149,00
0.00
149000 149000 149000 149000 149000 149000 149000
Operat
ing
costs
44,80
0.00
45,10
0.00
45,43
0.00
45,79
3.00
46,1
92.30
46,6
31.53 5,314.68 5,846.1
5

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Dispos
al
value
134,10
0.00
119,20
0.00
104,30
0.00
89,40
0.00
74,5
00.00
59,6
00.00 44,700.0
0
29800
Total 59,70
0.00
74,90
0.00
90,13
0.00
105,39
3.00
120,6
92.30
136,0
31.53 109,614.
68
12
5,046.1
5
PV
factor
0.90909
0909
0.82644
6281
0.75131
4801
0.68301
3455
0.6209
2132
0.56447
393
0.51315
8118
0.4665
0738
Total
NPV
54,27
2.73
61,90
0.83
67,71
6.00
71,98
4.84
74,9
40.42
76,7
86.25 56,249.6
6
5
8,334.9
5
5.33492
6198
4.42583
5289
3.59938
9008
2.84807
4207
2.1650
6075
1.54413
9428
0.97966
5498
0.4665
0738
Annua
l
equiva
lent
cost
10,17
3.10
13,98
6.25
18,81
3.19
25,27
4.92
34,6
13.54
49,7
27.54 57,417.2
1
12
5,046.1
5
The above table clearly shows that the annual equivalent cost of Audi is lowest out of all the four
models selected. The annual equivalent cost of Audi in year 1 is $10,173.10 only whereas the
annual equivalent cost of BMW, tesla and Mercedes Benz are all higher than the annual
equivalent cost of Audi. This is mainly because the Audi has a longer useful life compared to the
other three models (Bagire and Namada, 2013).
Mercedes Benz:
Like previous three models let us calculate the annual equivalent cost of Mercedes Benz for year
one to six on the basis of information provided about the vehicle regarding its purchasing cost
and certain assumptions made in respect of operating costs, annual maintenance cost and
disposal value at the end of each year (Schwenger, Straub and Borzillo, 2014).
Mercedes Benz
Year 1.
00
2.
00
3 4 5 6
Purchase 138,000.0 138000 138000 138000 138000 138000

0 CORPORATE FINANCE
price 0
Operating
costs
45,250.0
0
45,700.0
0
46,195.0
0
46,739.5
0
47,338.
45
47,997.
30
Disposal
value
110,400.0
0
82,800.0
0
69,000.0
0
55,200.0
0
41,400.
00
27,600.
00
Total 72,850.0
0
100,900.0
0
115,195.0
0
129,539.5
0
143,938.
45
158,397.
30
PV factor 0.90909090
9
0.82644628
1
0.75131480
1
0.68301345
5
0.6209213
2
0.56447393
Total
NPV
66,227.2
7
83,388.4
3
86,547.7
1
88,477.2
2
89,374.
45
89,411.
14
4.35526069
9
3.44616979 2.61972350
9
1.93671005
4
1.3157887
3
0.75131480
1
Annual
equivalen
t cost
15,206.2
7
24,197.4
2
33,036.9
6
45,684.2
9
67,924.
62
119,006.
23
The annual equivalent cost of Mercedes Benz as can be seen is $15,206.27 in year 1 and it has
touched $119,006.23 in year 6. Thus, out of the all four models the annual equivalent cost of
Audi is lowest. Thus, until unless any specific reason which is not specified here the company
should consider buying Audi SQ7 as it will help the company to reduce its operating costs (Asim
Shah, 2018).
Decision of vehicle model:
The objective of the management of the company is to minimize the vehicle related cost. As per
the above calculation the annual equivalent cost of vehicles for different models are explained
here to understand the operating costs better. In case of Tesla the annual equivalent cost is
$15,342 in year 1, $24438 in year 2, $37381 in year 3, $56012 in year 4, $81807 in year 5 and
$141,203. In year 6.
BMW has annual equivalent cost of $15147 in year 1, $23239 in year 2, $37063 in year 3,
$51393 in year 4, $76581 in year 5 and $128443 in year 6.

1 CORPORATE FINANCE
In case of Audi the car has a longer useful life of 8 years as opposed to 6 years for other vehicles
reported here. The annual equivalent operating cost in year 1 is $10174, in year 2 it is $13987, in
year 3 it is $18814, in year 4 it is $25275 with year 8 having an annual equivalent cost of
$125047.
In case of Mercedes Benz the annual equivalent cost is $15207 in year 1, $24198 in year 2,
$33,037 in year 3, $45685 in year 4, $67925 in year 5 and $119007 in year 6.
Thus, it is clear from the above computation that the annual equivalent cost is lowest for Audi
SQ7 out of the four vehicles reported here.
On the basis of simple annual equivalent cost it is a no brinier that the management should buy
Audi SQ7 (A. Alessa, 2016).
Conclusion and Recommendation:
On the basis of above calculation it is clear that Audi SQ7 has the lowest annual equivalent cost
of operations compare to Tesla, BMW and Mercedes Benz thus, is annual equivalent cost is the
only consideration then the company should use Audi SQ7 for its fleet management services in
the company. This will not only reduce the operating costs but also will ensure longer useful life
of the vehicle resulting in longer time for replacement of old vehicle.
Thus, the company should use Audi SQ7 for to ensure that its staffs and executives visit the
aged-care home to provide necessary services as required by the people staying in these places.