Engineering Economy Report: PAD Deal for Valles Global Industries

This report presents an analysis of a business proposal for Valles Global Industries, focusing on a deal with Park Analysis and Design (PAD). The report begins by calculating the minimum price PAD can charge per kilogram of material to make the deal worthwhile, considering factors such as total costs, tax benefits, the number of machines, and maintenance costs. The analysis determines the minimum material cost. Next, the report provides a recommendation on whether to accept the PAD deal, utilizing net present value (NPV) calculations for both accepting and not accepting the proposal. The findings suggest that Valles Global Industries should accept the PAD proposal to reduce operational costs. The conclusion emphasizes the benefits of subcontracting raw materials and machinery, including time and cost savings. The report concludes by stating that rejecting the project would result in the same overall costs for Valles Global Industries, potentially reducing profitability. The report also includes references to relevant literature on strategic investment decision-making and capital budgeting practices.

Running head: ENGINEERING ECONOMY
Engineering Economy
Name of the Student:
Name of the University:
Author Note

1ENGINEERING ECONOMY
Table of Contents
Introduction:...............................................................................................................................2
1. Calculating the minimum price PAD can charge per kilogram to make this deal
worthwhile:................................................................................................................................2
2. Providing the relevant recommendation for taking the PAD deal:........................................3
Conclusion:................................................................................................................................3
References and Bibliography:....................................................................................................5

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Introduction:
The assessment aims in evaluating the business proposal for Valles Global Industries,
which could help in determining the best possible investment option. In addition, the business
proposal that have been provided by the new entrant to the 3D printing business. The
calculation of minimum price for each kilogram needs to be calculated for determining the
significance of the overall project.
1. Calculating the minimum price PAD can charge per kilogram to make this deal
worthwhile:
Particulars Value
Total cost 87,500,000.00
Tax benefit 13,125,000.00
Number of machines 500
Years 3
Use materials per year each machine 300
Maintenance cost 7,500,000.00
Price of material cost
PM= (((87,500,000-13,125,000+7,500,000)/500)/3)/300
PM= 181.94
The above calculations have mainly indicated about the pricing structure for the
material cost per kg that could be charged by Park Analysis and Design, as their minimum
cost of the material. From the calculations, it has been determined that the material cost of
170.83 has been detected to be overall cost, which Park Analysis and Design could propose
to Valles Global Industries in their new business proposal. The total cost of the machines is
taken into consideration for determining the overall excessive cost that could be demanded by
Park Analysis and Design in their proposal. Additionally, the cost of mainly deducted for the

3ENGINEERING ECONOMY
tax benefits obtained from depreciation (Baum & Crosby, 2014). After which the
maintenance cost of added for determining the total cost, as the values are further divided by
the number of machines and kilograms for detecting the minimum cost that could be
acceptable by Valles Global Industries.
2. Providing the relevant recommendation for taking the PAD deal:
Accepting the Proposal
PW= +43,750,000 - 2,500,000(P/A,10%,3) - (-27,291,667(P/F,10%,3))
PW= - 28,094,869.27
Not accepting the Proposal
PW= -87,500,000 - 8,750,000(P/A,10%,3) - (-9,000,000(P/F,10%,3))+4,375,000(P/F,10%,3)
PW= -119,754,829.42
The information in the above table indicates about the calculation under both
scenarios, where the proposal; is accepted and when the proposal is not accepted. The
investment appraisal technique such as net present value is mainly used for determining the
appropriate investment option for Valles Global Industries. From the analysis, it is detected
that accepting the proposal could mainly have lower level of costs associated with the
operations, which could help in reducing the expenses and maximising the level of income
from operations (Alkaraan, 2015).
Conclusion:
In conclusion, Valles Global Industries should accept the proposal of Park Analysis
and Design, as the project would reduce the total cost of operations. In addition, the Valles
Global Industries can consider the new system, as it will reduce the annual cost of the

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organization. Subcontracting the raw materials and the machinery would benefit Valles
Global Industries, which includes time saving, reduce machine costing and raw material cost.
However, if the project gets cancelled then the overall cost would be same for Valles Global
Industries, which could reduce profitability of the company.

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References and Bibliography:
Alkaraan, F. (2015). Strategic investment decision-making perspectives. In Advances in
mergers and acquisitions (pp. 53-66). Emerald Group Publishing Limited.
Baum, A. E., & Crosby, N. (2014). Property investment appraisal. John Wiley & Sons.
Harris, E. (2017). Strategic project risk appraisal and management. Routledge.
Schlegel, D., Frank, F., & Britzelmaier, B. (2016). Investment decisions and capital
budgeting practices in German manufacturing companies. International Journal of
Business and Globalisation, 16(1), 66-78.
Throsby, D. (2016). Investment in urban heritage conservation in developing countries:
Concepts, methods and data. City, Culture and Society, 7(2), 81-86.