capital equipment p.p
TRANSCRIPT
8/14/2019 Capital Equipment P.P
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SOUKAT NANDI
MHA 2nd Sem.
PURCHASING CAPITALEQUIPMENT
8/14/2019 Capital Equipment P.P
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Content:Introduction.Significant Differences.
Consideration of Evaluation of BIDs.
Purchase of Used Equipment.
Sources of Used Equipment.
Reference.
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Introduction: The purposes of purchase capital
equipment is usually differentiatedboth in producers & policies from
the purchase of consumptionmaterials mainly because of thenature of large investment over along duration.
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Significant Differences:1.Negotiating Time: With the increase in the number of
contracts & available alternative sources,
negotiating time varies greatly &generally ,it greater than that for otherpurchases.
2.Sources Availability: Due to specific & stringent requirement
of engineering & design feature , sourcesare limited. Therefore , the purchasedecisions are made on the basis of
urgency of requirements &rather than on
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Cont…3.Size of Expenditure:
Since this criterion greatly influencesmanufacturing capability , availability finance& cost of capital weighs more with top-management.
4. Lead Time Requirement: A unique features in the purchase of capital
equipments is the lead time required for asupply. Through very few equipments are
standardized , most of the major equipmentsare custom built & require sufficient lead timefor the suppliers to fabricate or manufacture &deliver.
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Consideration of Evaluation of
BIDs: 1.Operating Characteristics &
Engineering Features:
The production & or user departmentgenerally establishes the need & definesthe functions which form the very basis of it’s performances characterizes & designfeatures , & the selection has to be made forthe one which is best suited to the existingprocess.
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Investment:
Pay back Period Method: Most simple & widely used method. The
length of time required for cash inflow as aresult of investment is calculated. Theequipment or machine which has a shorter
useful life must pay for itself is the themebehind it. Shorter the payback period, thebetter the investment from the economicviewpoint. The formula is-
t=C/I T=Time payback period. C=Initial Capital outlay. I=Inflow of Cash including depreciation.
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Disadvantages:
Uniform cash inflow each year & it can’thandle varying annual cash inflow.
It ignores profit earned after the recovery
of the initial investment.
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Return on Investment:
The methods of measuring this is –ROI=I/CWhere,I=The average inflow of cash after deduction of
taxes.C=original Capital Outlay.
Limitations are-Estimate approximate rate of return on
investment.
Does not give a true picture of the periodsduring which the investment actuallygenerate revenue.
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Method:
It is the procedure to find a rate of investment equal to the present value of thecash proceeds expected from an investment.
The formula is-
C=R1/1+r+R2/(1+r)2+R3/1+r3…Rn/(1+r)n+S/(1+r)n
where,
C=Initial capital outlay on investment. r=r is the discounted rate of return.
R
1, R
2, R
3…R
nare the cash inflow over the
years value of the investment at the end of n years.
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Discounted Cash Flow(DCF)Method:
It is using the present value concept inevaluating an investment , all futurerevenues are discounted in order to find out
the total present value of the future earnings& compared with the present value of investment. It means a rupee earned todayis worth more than a rupee earnedtomorrow. Similarly it means a rupee earnedin future years is less than a rupee earnedtoday.
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3.Qualitative Consideration:
Reliability of supplier in producing qualityproducts & standing behind hisguarantees.
Financial soundness of suppliers &
operations.Services rendered by the suppliers such as
demonstration service.
Installation & commissioning.
After sales service.
Replacements of parts.
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Purchase of UsedEquipment:
Used equipment purchased in preference toa new equipment because of economicconsideration.
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Sources of Used Equipment:
Directly from owner.
Used equipment dealers.
Brokers & Auctioneers.
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Reference:P.Gopalakrishnan & M.Sundaresan-Materials
management an Integrated Approach.
Gupta Shakti & Kant Sunil(2004)-HospitalStores Management, an Integrated
Approach.Dutta A.K- Integrated Materials management