Sake Of Easiness Understanding Calculation â€Myassignmenthelp.Com

Question: Discuss About The Sake Of Easiness Understanding Calculation? Answer: Introduction Life cycle costing (LCC) is the cost associate with a project or product over the life of its use[1]. Net present value (NPV) is the estimation of some speculation over the timeframe. NPV gives data with respect to the estimation of cash after some time, so it is also called time value of money. In current case, we shall discuss the LCC NPV for buying options (financing / own cash) available for a new car. In this report we shall understand the above discussed factors using the buying options of a new car. The buying options which shall be evaluated are the loan from a reputable car financing institution and the Using own funds and shall see which option is more profitable or advisable. All the required assumptions as per the ground conditions and the latest available information are used to calculate the same. The spreadsheet attached with the report shall show the calculation in detailed. Assumptions I selected the car Hyundai Elantra (1591 CC) for my family and own use at 81,999[2] Singapore Dollar (SGD) as base rate. The total value of the car shall be shown in the spreadsheet where all other cost heads are calculated to derive at the total cost of car. There are two options of getting the finance for buying car: Option 1: using loan from reputable financial institution that provides for car, like Standard Chartered Bank which provides the lowest rate of interest at around 2.68%[3]. In this case the down payment is required to be done for obtaining the balance amount as loan from financial institution. So let the down payment be 50,000 SGD and the balance shall be taken from bank as loan. Option 2: the second portion is using the own finance and spend the money already available. The total cost which is required to be spent to buy the car shall be done in spreadsheet. The maintenance cost for the car is zero for the first year due to the policy of the company to provide free maintenance for year 1 and after that the maintenance is required to be done at own cost only and company shall not bear any cost, all the labor and material cost shall be bared by the buyer. List of costs In this section, we shall discuss regarding the expected expenditures which we are required to do for purchasing a new car in Singapore. The probable head of the cost of a car are[4] shown below: Base rate of the car: the rate which is actually being charged by the company and the cost which adds to the balance sheet of Hyundai to calculate the profit and loss sheet at the end of each cycle. The base rate as provided in the official website of a dealer for the Hyundai Elantra was 81,999 SGD. Certificate of Entitlement (COE): it is the cost of getting a license to drive the car on road for around 10 years period. It has some range of cost; the cost depends on the volume of engine or engine capacity and the horse power of the engine. For the selected car, the value is around SGD 36,000 (generally it is considered in the car rate, but in this case we shall show it as head to add more items) Road Tax: the tax given to the government for the maintenance of the roads is fixed for 10 years of tenure from the date car is purchased. The fixed rate of road tax is 7440 SGD. COE and PARF Rebate: These returns are introduced by the government to have a check on the environmental conditions and always motivate the owners to scrap the vehicle within 10 years of time to get this rebate. We shall neglect this rate for the calculation sake, as we dont know the time of usage. Auto Insurance: it is the insurance we do by transferring the risk to other third party. The risks are like death, damage, injury, theft, fire and medical cost from any probable accident. Even though the rate of car insurance depends on the present value of car and accordingly the premium of the insurance also decreases. But without getting into the reduced insurance factor, we are considering a fixed 13,000 SGD expenditure for the insurance once for next 10 years. Total on road cost: the new car Hyundai Elantra can be bought by incurring all above costs as discussed. Generally all the cost of the car on road can be calculated by adding up all the heads the base rate, COE and Insurance. The value obtained by adding the above items is 138,439 SGD. Total Car Loan Value: this head shall be applicable in case of the loan and not used in case the total finance arrangement is done by own. The bank considered for the case is Standard Chartered Bank with rate of interest 2.68%. The loan amount depends on the amount of down payment we can do by using own fund. The more we do the down payment the less will be the interest amount. So, in this case we considered the down payment is done for 50,000 SGD. Maintenance Cost: the maintenance cost is expected to be 1000 SGD from the 2nd year on wards, the policy of Hyundai is providing free maintenance for the 1st year. Sources for all items The sources from where few of the cost back-ups are developed as follows: The cost of loan from the Standard Chartered Bank @ 2.68% The rate of the car (Hyundai Elantra) is obtained for the below source: Now the, discount rate of the banks at Singapore is: Treatment of car resale The resale value of the car depends on the depreciation rate of car applicable in the country. The depreciation rate can be calculated as[5]: Annual Depreciation = (Total Cost of Hyundai Elantra Sale Value of Hyundai Elantra) / Number of Years in Service The resale value of a car in Singapore mainly depends on the make of the car, engine capacity of the car, type of vehicle, COE and the registration cost[6]. So the resale value of the car shall also take in to consideration the depreciation rate. The depreciation rate per year = (138439 SGD 0) / 10 = 13844 SGD After considering the factors affecting it, the resale value of Hyundai Elantra after 5 years shall be 1,38,439 SGD 5x13,844 = 69,219 SGD Use of NPV process The NPV (Net Present Value) is the distinction of the present estimation of the item or the thing which can get its inflow (or create income by offering it) and the present estimation of surge (considering every one of the things like support cost). The positive value of the NPV shows that the project or the product can be profitable and the negative value or the reducing value trend between the inflow and outflow means that the project is either totally on loss or it has tendency to go to loss. The basic calculation in the worksheet is based on the above NPV method. Discount rate It is the percentage of rate the central bank or the regulatory bank charges form all the banks which lend money to the loan taker. This charge is regulated by the central bank. The rate of discount in Singapore for taking any loan is 1.17%[7]. In current report also we shall use the data obtained. So, let the discount rate of the calculation shall be used as 1.17% Conclusion By considering all the above data and assumptions to buy Hyundai Elantra using the payment option of one is using the loan from bank and the other is by own funds, it can be concluded that the NPV obtained for the product life cycle is positive in both the cases. In both the cases the NPV obtained is positive, that means buying a car in Singapore is always profitable (cost of diesel, petrol, average running kilometers are not considered for the calculation). But when we compared between the two options by taking loan from bank and the other using own funds, we found that the NPV of using own fund is generating less positive figure than the by taking loan from bank. The NPV for using own fund is 327,258 SGD and the NPV of by taking loan from bank is 404,251 SGD. So, to buy Hyundai Elantra, taking loan from car financing institute is always advisable. References Catapult Ventures Pte. "Get The Best Car Loans Interest Rates for 2017 Now! ." https://www.moneysmart.sg. 2017. https://www.moneysmart.sg/car-loan (accessed September 11, 2017). DOE. "LIFE-CYCLE COST ESTIMATE." www.directives.doe.gov. 2017. https://www.directives.doe.gov/directives-documents/400-series/0430.1-EGuide-1-Chp23/@@images/file (accessed September 11, 2017). IndexMundi. "Singapore Central bank discount rate." https://www.indexmundi.com. 2016. https://www.indexmundi.com/singapore/central_bank_discount_rate.html (accessed September 11, 2017). Jan, Irfanullah. "Net Present Value (NPV)." AccountingExplained.com. 2013. https://accountingexplained.com/managerial/capital-budgeting/npv (accessed September 11, 2017). sgCarMart. "Hyundai Pricelist From Komoco Motors." https://www.sgcarmart.com. 2017. https://www.sgcarmart.com/new_cars/newcars_AD_pricelist.php?DID=14 (accessed September 11, 2017). Teh, Joe. "Singapore, use this calculator to check how much your car is worth." TechieLobang. May 22, 2014. https://techielobang.com/blog/2014/05/22/singapore-use-this-calculator-to-check-how-much-your-car-is-worth/ (accessed September 11, 2017). ValuePenguin. "Understanding How Car Value Depreciation Works in Singapore." www.valuepenguin.sg. 2017. https://www.valuepenguin.sg/understanding-car-value-depreciation-singapore (accessed September 11, 2017). Woodpecker Asia Tech PTE. "How much does a car really cost in Singapore?" www.gobear.com. 2017. https://www.gobear.com/sg/blog/how-much-does-a-car-really-cost-in-singapore (accessed September 11, 2017).