SBM3307 Project Development: Computer Assembly & Economic Analysis

This report provides a detailed analysis of a computer assembly project, focusing on depreciation and sensitivity analysis. It calculates depreciation values for both buying and assembling computers, using both straight-line and declining balance methods over a five-year period. Cash flow diagrams are presented to illustrate the effectiveness of cash flows for each method. The report includes a sensitivity analysis to determine the impact of depreciation on the project's economics, and it calculates future values for both options to compare their profitability. The analysis concludes with a comparison of the two depreciation methods and a determination of the more appropriate alternative for the association.

Introduction
This particular paper is known to deliver the key ideas of computers assembling since this
particular association is known to assemble various parts as well as components of the
computer. This particular pamphlet is known to carry out various calculations which includes
depreciation along with sensitivity analysis of the project which also help out in finding
various values required. This particular paper is known to analyse the depreciation value for
every years which also shows the diagram of cash flow for buying as well as assembling a
computer. When the depreciations is calculated it is known to get calculated for future values
for both the options of five years. In this particular way, this paper will be showing the cost
and value and will also show the profitability comparison of both buying as well as
assembling the computers.
Sensitivity analysis
In order to do sensitivity analysis of a project we got some cost capital on each of the
projects. As we are not doing any kind of business, in this particular case, we are known to
provide service which is the depreciation value as sensitivity analysis.
Usage of sensitivity analysis
The sensitivity investigation is known as a practice which is used for regulating the unrelated
values of self governing variable impression under a given set of expectations. This
particular practice is used within detailed limitation which is known to rely on the effort
variables such as the effect that the validation in interest rate will be having in bond prices.
this project will be sing depreciation method for analysis sensitivity. The practice of
sensitivity will be using detailed limitations which is known to rely on the effort variables.

Depreciation
It is known as the techniques of cost transferring of a touchable strength over the useful life. .
Businesses denigrate long-term assets for both bookkeeping and tax determinations. The
previous distresses the equilibrium sheet of a business or company, and the latter disturbs the
net revenue that they tend to report. It have seen that the expense is owned when the
reduction will be declining. There are two ways of calculating the depreciation. One of the
way is the straight line method and the other is the declining balance method. The value of
the depreciation is known to be calculated above 5 years.
The cash flow figure is known to potray the effectiveness of the cash flows. It is known to
depict the monetary problem which will demonstrate all cash outflows as well as inflows
planned along a straight line.
Using Straight –line method for project A,

We have,
Cost basis (B) = $40000
Depreciable life if the asset in years (N) =5 years
D k= (B-SVN)/ N
For 1st year,
D1= (40000-0)/5 =8000
For 2nd year,
D2= 40000-8000 = 32000
For 3st year,
D3= 32000-8000 =24000
For 4st year,
D4= 24000-8000 =16000
For 5st year,
D5= 16000-8000 =8000
1st yr 2nd yr 3rd yr 4th yr 5th yr 6th yr
8000 8000 8000 8000 8000
40000 0
Figure: cash outflows for project A using straight-line method
Using Straight –line method for project B,
We have,
Cost basis (B) =30000

Depreciable life if the asset in years (N) =5 years
D k= (B-SVN)/ N
For 1st year,
D1= (30000-0)/5 =6000
For 2nd year,
D2= 30000-6000 = 24000
For 3st year,
D3= 24000-6000 =18000
For 4st year,
D4= 18000-6000 =12000
For 5st year,
D5= 12000-6000 =6000
1st yr 2nd yr 3rd yr 4th yr 5th yr 6th yr
6000 6000 6000 6000 6000
30000 0
Figure: cash outflows for project B using straight-line method
Using Declining-Balance method for project A,
We have,
R=2/N =2/5 =0.4
Cost basis (B) =40000
Depreciable life if the asset in years (N) =5 years

D k= B(R)
For 1st year,
D1=40000x0.4 =16000
For 2nd year,
D2= (40000-16000)x 0.42 = 24000x0.16= 3840
For 3st year,
D3= (24000-3840)x 0.43 =1290
For 4st year,
D4= (19152-1225.728)x0.44 =458.922
For 5st year,
D5= (17926.272-458.922)x0.45 =178.865
For 6th year,
D7 = (17467.078-178.865) x0.4^6=
1st yr 2nd yr 3rd yr 4th yr 5th yr 6th year
15200 3648 1225.7 458.92 178.865 70.81
38000
Figure: cash outflows for project A using declining method
Using Declining Balance for project B,
R=2/N =2/5 =0.4

Cost basis (B) =28000
Depreciable life if the asset in years (N) =5 years
D k= B(R)
For 1st year,
D1= 28000x0.4 = 11200
For 2nd year,
D2= (28000-11200)x0.42 = 2688
For 3st year,
D3= (16800-2688)x0.43 =903.168
For 4st year,
D4= (14112-903.168)x0.44 =338.146
For 5st year,
D5=(13208.832-338.146) x0.45 =131.795
For 6th year,
D6 = (12869.854-131.795)x 0.4^6=52.17
1st yr 2nd yr 3rd yr 4th yr 5th yr 6th year
11200 2688 903.16 338.14 131.795 52.17
28000
Figure: cash outflows for project B using declining method

The above figures shows the two different cash flow diagrams where depreciation is
calculated using te declining balance method.
Decision making
The above cash flow diagram state that there is outflow of cash. As a part of sensitivity
analysis we will b choosing the method of declining balance. When the amount is minimal,
then it is quite better for getting the project with less capital.
Economic analysis
The economic investigation is known to be a scheme is known to be built on “competence
prices” which states that the values which is known to display the consequence on the
countrywide revenue. The projects are known to substitute the prospective for donating the
major amount to the revenue.
Future value :
The future value is knowna s the worth of a benefit at an exact date. It is known to measure
the insignificant forthcoming sum of the currency which is known to calculate the amount of
currency at a quantified time. In the above calculations, the future value is known to be
calculated by using the formula for double declining method and lastly calculated the
percentage.
As we have used straight line method:
So to calculate the future value for option A:
We have,
F= A (F/A, 15%, N) where,
A = 7600 as the ratio of depreciated value is same each year
15 % is the interest rate that we have been given to choose
N= 5 years (time period)

F= 7600 (F/A, 15 %, 5)
From the table,
F= 7600x 6.7424 = 51242.24
Similar to that for option B
We have,
A = 5600 so,
F= 5600 (F/A, 15%, 5)
=$ 5600x6.7424
= $37744
And the difference in value is Project A- Project B
= 51242.24-37744
= 13498.24
Calculating Future Value for Double declining method
We have to calculate for each year where annuity is different so we have to calculate for each
year:
For Option A:
For 1st year present value 38000-15200
So, F= (38000-15200) (F/P, 15%, 5)
=22800X2.0114
= 45859.92
For 2nd year
F= (22800-3648) (F/P, 15%, 4)
= 19152X1.7490
=33324. 48

For 3rd year
F= (19152-1225.7)(F/p,15%, 3)
= 27264.10
For 4th year
F= (17926.27-458.92) x (F/P,15%,4)
= (17926.27-458.92 )x 1.32
= 23056.91
For 5th year
F=(17467.348-178.865) X (F/P, 15%,5)
F= (17467.348-178.865) X1.15
=19881.75
Total =$(45859.92+33324. 48+27264.10+23056.91+19881.75)-
= 149387.16

For 3rd year
F= (14112—903.168)(F/P,15%, 3)
= 13208.83X1.52
=20077.42
For 4th year
F= (13208.832-338.146)x1.32
= 12870.68X1.32
= 16989.30
For 5th year
F= (12870-131.795)X 1.15
=12738.20X1.15

=14648.93
Total =33841.92+24681.88+20077.42+16989.30+14648.93= 110239.45
Total for option A is 149387.16
Total for option B is 110239.45
FWSL = ( Project A- Project B) / Project B
= 51242.24-37744/ 37744
=13498.24/37744
= 0.3576
In percentage,
=0.3576 x 100%
= 35.76%
In Double Declining method,
= 149387.16 - 110239.45 / 110239.45
= 39087.71 /110238.45
=0.3545
In Percentage,
=0.3545X100%
=35.45 %
Here Dsl < Ddb.
Conclusion

This report is known to be quite helpful for funding out different costs for both the
alternatives. This particular paper is known to help the company for calculating depreciation
using straight line. For this reason, it can be said that the project has helped the association
for choosing which alternative is appropriate in nature. After doing all the calcultions it can
be figured out that the depreciation value of bth the options are similar in nature.