capital equipment p.p

8/14/2019 Capital Equipment P.P

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SOUKAT NANDI

MHA 2nd Sem.

PURCHASING CAPITALEQUIPMENT



Content:Introduction.Significant Differences.

Consideration of Evaluation of BIDs.

Purchase of Used Equipment.

Sources of Used Equipment.

Reference.



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.



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



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.



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.



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.



Disadvantages:

Uniform cash inflow each year & it can’thandle varying annual cash inflow.

It ignores profit earned after the recovery

of the initial investment.



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.



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.



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.



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.



Purchase of UsedEquipment:

Used equipment purchased in preference toa new equipment because of economicconsideration.



Sources of Used Equipment:

Directly from owner.

Used equipment dealers.

Brokers & Auctioneers.



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



JAI HO JAI HO

capital equipment p.p

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