Case Study 1 – Investment in Smart Manufacturing

“Getting Smarter with Smart Manufacturing –

IoT and AI-enabled companies to improve operational efficiencies and output quality for their customers”

– The Business Times, Aug 24, 2019

The fourth industrial revolution is the current trend of manufacturing technologies that enable businesses to operate seamlessly and efficiently in the digital world. Machines and equipment are embedded with software to be more responsive and interactive. In Singapore, for instance, manufacturing companies are increasingly boasting their industry.

4.0 capabilities and have played a part in driving the nation’s overall productivity growth.

Avantz Fabrication Asia, a metal fabrication company, supplies both local and regional markets with metal fabrication projects. The company is prepared to spend up to $20 million to launch a full-fledged smart factory, in a bid to boost revenue and productivity.

Feasibility studies amount to $80 000 have been spent to determine probable costs and benefits potential. These studies have provided the following information:

• New equipment and sensors would have to be acquired to integrate into the existing work process. These are estimated to cost $15
• Installation of this equipment and sensors would require a further $200
• These assets are expected to have a 10-years useful life. At the end of useful life, they would have a salvage value of $150
• Sales in kilograms (kg) over the next 10 years are projected to be as follows:

• Production and sales of steel fabrication would require working capital of $300 000 to finance accounts receivable, inventories, and day-to-day cash needs. This working capital would be released at the end of the asset’s
• Fabricated steel would sell for $3/kg; variable costs of production, administration, and sales would be $1/kg.
• Annual fixed expenses include Property lease at $100 000, insurances at $50 000, and other miscellaneous expenses at $140 000. Included in miscellaneous expenses is depreciation on the assets estimated at $25
• Two additional engineers will be recruited to maintain the new assets, at an additional $90 000 annual salary per engineer.
• Avantz Fabrication Asia’s board of directors has specified a required rate of return of 11% on this investment. h Avantz Fabrication Asia pays a corporate tax rate of 15%.

Case Study 2 – Budgeting Ahead 

Avantz Fabrication Asia has a major shareholding in ReelTin International, an iron ore supplier.

On January 2, 2020, ReelTin International is attempting to budget cash flows through February 29, 2020. On this latter date, an unsecured note will be payable in the amount of $110,000. This amount was borrowed in November to carry the company through the seasonal peak in December and January.

Selected balances from ReelTin International’s book of accounts on January 2 are:

The company estimates that approximately 50% of the sales will be for cash, and the rest will be on credit.

Of the credit sales, 20% of the money will be received in the month of sale. 40% will be collected in the following month, and 38% will be received 2 months after the sale. Approximately 2% of credit sales are never collected and are written off.

The average selling price of the company’s products is $90 per ton. Actual and projected sales are:

All purchases are payable within 30 days. Approximately 70% of the purchases in a month are paid that month and the rest the following month. The average cost is $60 per ton.

Target ending inventories each month is 12 000 ton.

Total budgeted marketing, distribution, and customer-service costs for the year are $3 000 000. Of this amount, $120 000 000 are considered fixed (and include depreciation of $80 000). Fixed costs are accrued evenly through the year.

The remaining variable costs accrued evenly with unit sales. Both fixed and variable costs are paid in the month incurred.

Requirements:

You will be required to write a management report in which the following points should be discussed.

• Analyze the Investment proposals by using NPV and IRR and provide recommendations. You should also briefly comment on other investment proposal techniques that Avantz Fabrication Asia may use, and the limitations of using these
• Provide an explanation of the different sources of funding available to the company, and their advantages and disadvantages and make recommendations as to how these funding sources are appropriate to the planned investment project.
• Analyse the level of breakevens required if Avantz Fabrication Asia proceeds with the
• Prepare a forecasted cash budget for January and February
• An evaluation of the estimated ReelTin International’s performance or position during the same
• A detailed Literature Review of the tools you have used such as capital investment techniques, breakeven analysis and budgets and their importance to the business case.
• Other issues for management to consider that you think are vital for them to survive and make a