case 8 primus automation division

7/23/2019 CASE 8 Primus Automation Division

1/19


2/19

1. Primus Automation

2. Primus Background

3. Avanjet

4. Avanjet Background

5. Analysis buy and borrow option

6. Variant Analysis7. Conclusion/Suggestion

8. Lesson Learn


3/19

Merupakan perusahaan global yang menghasilkanproduk-produk inovative berupa automation systemproducts and services yang beroperasi di negara-negara : United States, Europe, and Asia.

Produk yang dihasilkan berupa :Programmable controllersNumerical controllers

Industrial computersManufacturing softwareFactory-automation systemsData communication networks


4/19

Sasaran perusahaan adalah : Memelihara kinerjaperusahaan sebagai pemimpin pasar denganmeningkatkan sales 15%/tahun denganpencapaian target pada net income dan working

capital turnoverKondisi yang dihadapi adalah :1. Pertumbuhan ekonomi yang melambat2. Meningkatnya persaingan

3. Aliansi yang bersifat cross continental4. Muncul produk baru5. Bergesernya transaksi dari pola penjualan menjadi

leasing


5/19

Pabrik pembuat corporate-jet aircraft.Untuk melakukan cost reduction dan mempercepat

companys production line. Avantjet membutuhkan

automation system

Beberapa catatan penting dalam meningkatkan

kinerja :

Mempunyai permasalahan perimbangan Asset

dan Hutang yang high leveraged CEO mempunyai kebijakan untuk tidak

mengeluarkan CAPEX yang akan berpengaruh

negatif terhadap the income statement and

balance sheet


6/19

Beberapa alternatif yang akan dilakukan Avantjetuntuk pengadaan automation sysytem adalah :

1. Melalui pinjaman

2. Pengadaan melalui conditional sale dimana kepemilikan

akan berpindah pada saat pembayaran final

3. Sistem sewa peralatan :

1. Capital Lease

2. Operating Lease


7/19

Avantjet's Statement of Income ($000) 2001 2000 1999

Sales 576,327 575,477 432,522

Other income 9,985 6,976 9,677

Gross income 586,312 582,453 442,199Cost of goods sold 425,076 423,443 325,016

Selling, general, & admin. 43,624 36,215 35,632

Research & development 13,773 12,873 9,064

Interest 84,062 87,259 27,002

Total expenses 566,535 559,790 396,714

Income before taxes 19,777 22,663 45,485

Taxes 9,690 11,105 22,288

Net income 10,087 11,558 23,197

Avantjet's Balance Sheet ($000) 2001 2000

Assets Current assets:

Cash and temporary investments $19,918 $27,263

Accounts receivable 37,791 37,307Inventories 310,180 323,101

Prepaid expenses 13,928 13,362

Total current assets 381,817 401,033

Property, plant, and equipment:

Land 2,245 2,245

Buildings 30,654 30,229

Machinery and equipment 26,932 21,244

Furniture and fixtures 1,683 1,520

Construction in progress 1,668 885

63,182 56,123Less accumulated depreciation 12,634 8,267

Net property, plant, and equipment 50,548 47,856

Other assets 640,369 648,339

Total assets $1,072,734 $1,097,228

Liabilities and stockholders' equity

Current liabili ties:

Long-term debt $592 $563

Accounts payable 42,355 38,760

Notes payable 4,750 5,764

Accrued comp., int. & other liabilities 39,627 43,855

Deposits and progress payments 146,964 160,946

Total current liabilities 234,288 249,888

Long-term notes payable to banks 646,633 671,225

Deferred income taxes 42,661 41,498

689,294 712,723

Common stockholders' equity:

Common stock 3,385 3,027

Capital in excess of par value 74,081 69,770

Retained earnings 72,017 62,156

Less common stock in treasury (331) (336)Total stockholders' equity 149,152 134,617

Total liabilities and stockholders' equity $1,072,734 $1,097,228

Financial Ratio 2001 2000

Liquidity

Current Ratio 1.63 1.60

Acivity Ratio

Inventory Turnover 1.37 1.31

Average Col lection Period (day) 23.61 23.34

Total Asset Turnover 0.54 0.52

Debt Ratio

Debt Ratio 86% 88%

ProfitabilitasGross Profit Margin 27.50% 27.30%

Net profit Margin 1.75% 2.01%

Avantjet mempunyai ratio hutangyang besar, sedang net profitmenurun

Pembelian dengan hutang akanmemperburuk kondisi keuangan


8/19

Income Tax Depreciation

Year Percentage

1 20.00

2 32.00

3 19.20

4 11.52

5 11.52

Rate Schedule

5-year MACRSTerm under hypothetical leasing & buy-borrow strategies

Loan ("Buy-and-Borrow")

Equipment cost $715,000

Cash down payment $0

Loan amount $715,000

Lease Annual payments 5-year Payment/Year

Leasing option #1 $155,040




Both Methods

Guaranteed residual value: 11.2729%

Investment tax credit 0%

Depreciation 5-year MACRS

Purchase Price Quoted Annual Lease Expenses

if Avanjet were to buy and Resd' l Value for 5 year

Faulhaber Gmbh 759,000.00$ $ 170000, 15% residual value

Honshu Heavy Industries 737,000.00$ $ 163000, 24% residual value

Primus Automation Division 715,000.00$ -

System Manufacturer

Proposal pengadaan dari kompetitor


9/19

Option 1 0 1 2 3 4 5Net Purchase Price -715,000

Depreciation Tax Savings 48,620 77,792 46,675 28,005 28,005

Lease Payment 155,040 155,040 155,040 155,040 155,040

Tax on Lease Payment -52,714 -52,714 -52,714 -52,714 -52,714

Residual Value 67,199Tax on Residual Value -13,402

Net Cash Flow -612,674 150,946 180,118 149,002 130,332 81,803

NPV (23,002)

IRR 4.64%

Option 2 0 1 2 3 4 5

Net Purchase Price -715,000


Lease Payment 160,003 160,003 160,003 160,003 160,003


Residual Value 67,199

Tax on Residual Value -13,402

Net Cash Flow -609,398 154,222 183,394 152,277 133,607 81,803

NPV (9,304)

IRR 5.61%

Option 3 0 1 2 3 4 5



Lease Payment 162,350 162,350 162,350 162,350 162,350




Net Cash Flow -607,849 155,771 184,943 153,826 135,156 81,803

NPV (2,827)

IRR 6.07%

Option 4 0 1 2 3 4 5



Lease Payment 164,760 164,760 164,760 164,760 164,760




Net Cash Flow -604,641 158,979 188,151 157,034 138,364 81,803NPV 10,587

IRR 7.02%

Primus prop. NPV IRR

Option-1 (23,002) 4.64%Option-2 (9,304) 5.61%

Option-3 (2,827) 6.07%Option-4 10,587 7.02%

Agar NPV = 0 dan

IRR = 6.27% makaLease payment harus$163.375PadaTax rate =34%Cost od debt = 9.5%


10/19

Loan Amortization schedule

Borrowing 715,000Interest 9.50%

Year 1 2 3 4 5

Beginning balance 715,000 596,713 467,189 325,360 170,057

Annual payment 186,212 186,212 186,212 186,212 186,212 186,212

Interest before tax 9.5% 67,925 56,688 44,383 30,909 16,155

Principal reduction 118,287 129,524 141,829 155,303 170,057

Ending balance 596,713 467,189 325,360 170,057 0

Tax rate 34%

Interest after tax 44,831 37,414 29,293 20,400 10,663

Annual Payment = PMT(Pretax Annual Rate, Term, -715000)

Untuk Leasing option #1,#2,#3 & #4Tax rate 34% Eq cost 715,000

Pre tax interest 9.50% Disc rate 6.27%

Intrst. Paymt Principal Deprc. Deprc. Deprc. Tax Residual CF Loan CashAfter Tax Payment rate before Tax Tax Saving After Tax Outflow 155,040 160,003 162,350 164,760

0 102,326 105,602 107,151 108,742

1 44,831 118,287 20.00% 143,000 (48,620) 114,498 102,326 105,602 107,151 108,742

2 37,414 129,524 32.00% 228,800 (77,792) 89,146 102,326 105,602 107,151 108,742

3 29,293 141,829 19.20% 137,280 (46,675) 124,447 102,326 105,602 107,151 108,742

4 20,400 155,303 11.52% 82,368 (28,005) 147,698 102,326 105,602 107,151 108,742

5 10,663 170,057 11.52% 82,368 (28,005) (67,199) 85,515

Sum 142,600 715,000 673,816 (229,097) (67,199) 561,303 511,632 528,010 535,755 543,708

NPV 469,273 454,717 469,273 476,156 483,225

Lease Cash OutflowYear


11/19

Tax rate 34% Equity cost 715,000

Pre tax interest 9.50%

Lease payment 155,040

Lease Pay Tax Savings Forgone Resid. Initial Purch. Lease Paym.

After Tax Assc. with Deprc. Value After Tax Price Save - Incr. Cash Flow

0 (102,326) 715,000 612,6741 (102,326) (48,620) (150,946)

2 (102,326) (77,792) (180,118)

3 (102,326) (46,675) (149,002)

4 (102,326) (28,005) (130,332)

5 0 (28,005) (67,199) (95,204)

Sum (511,632) (229,097) (67,199) 715,000 (92,929)

IRR 5.32%




0 (105,602) 715,000 609,398

1 (105,602) (48,620) (154,222)

2 (105,602) (77,792) (183,394)3 (105,602) (46,675) (152,277)

4 (105,602) (28,005) (133,607)

5 0 (28,005) (67,199) (95,204)

Sum (528,010) (229,097) (67,199) 715,000 (109,307)

IRR 6.27%




0 (107,151) 715,000 607,849

1 (107,151) (48,620) (155,771)

2 (107,151) (77,792) (184,943)

3 (107,151) (46,675) (153,826)

4 (107,151) (28,005) (135,156)

5 0 (28,005) (67,199) (95,204)

Sum (535,755) (229,097) (67,199) 715,000 (117,052)

IRR 6.72%




0 (108,742) 715,000 606,258

1 (108,742) (48,620) (157,362)

2 (108,742) (77,792) (186,534)

3 (108,742) (46,675) (155,417)

4 (108,742) (28,005) (136,747)

5 0 (28,005) (67,199) (95,204)

Sum (543,708) (229,097) (67,199) 715,000 (125,005)

IRR 7.19%

Year

Year

Year

Year

NPV over IRR over

buy & Borrow buy & Borrow

155,040 14,556.03 5.32%

160,003 0 6.27%

162,350 (6,883.48) 6.72%

164,760 (13,951.77) 7.19%

Leasing Payment

Pada lease payment$160.003

Leasing akan samapengaruhnya denganbuy & borrow


12/19

A B C D

34.00% 34.00% 0.00% 0.00%9.50% 13.00% 9.50% 13.00%

6.27% 8.58% 9.50% 13.00%

$469,273 484,546 $663,800 $671,253

6.27% 8.58% 9.50% 13.00%

$155,040 $155,040 $155,040 $155,040$454,717 436,915 651,863 616,202

5.32% 5.32% 8.61% 8.61%$14,556 47,632 $11,937 $55,051

$469,273 $450,901 $672,730 $635,927

6.27% 6.27% 10.17% 10.17%$0 33,645 -8,930 $35,326

$476,156 $457,515 $682,598 $645,2556.72% 6.72% 10.91% 10.91%

-6,884 27,031 -18,798 $25,997

$483,225 $464,306 $692,730 $654,834

7.19% 7.19% 11.68% 11.68%

-13,952 20,240 -28,930 $16,419

Leasing option #4

NPV of lease

NPV of lease

IRR of lease

After-tax cost of

Pretax cost of debt

Eff.tax rate

Scenario

Leasing option #1

IRR of lease

Lease advantage over bor.&by

IRR of loan (borrow-and-buy)

NPV of loan (borrow-and-buy)

NPV of lease

IRR of lease


IRR of lease


Leasing option #2


Leasing option #3

NPV of lease

Pada tax rate = 0, akanmemperbaiki posisileasing

Naiknya cost of debtmemperbaiki posisileasing


13/19

A B C D34.00% 34.00% 0.00% 0.00%

9.50% 13.00% 9.50% 13.00%

6.27% 8.58% 9.50% 13.00%

$469,273 484,546 $663,800 $671,253

6.27% 8.58% 9.50% 13.00%

484,376 501,993 686,679 697,207

498,593 479,073 714,762 675,660

7.13% 7.13% 11.42% 11.42%

(14,218) 22,920 (28,082) 21,547

Honshu

438,036 458,436 624,641 $640,997

478,063 459,346 685,330 $647,839

7.13% 8.64% 13.48% 13.48%

(40,027) (911) -60,689 (6,842)

After-tax cost of debt

NPV of lease

NPV of lease


IRR of lease

Lease advantage over borrowing

Faul haber Gmbh


IRR of leaseLease advantage over borrowing


IRR of loan (borrow-and-buy)

Scenario

Eff.tax rate

Pretax cost of debt


14/19

Option I

9.50% 10.0% 10.5% 11.0% 11.5% 12.0% 12.5% 13.0%

40% 14,376 18,755 25,839 23,510 25,839 28,137 30,404 32,641

34% 14,556 18,684 25,514 23,271 25,514 27,723 29,899 32,043

25% 14,450 18,031 24,246 22,210 24,246 26,247 28,213 30,147

20% 14,202 17,398 23,161 21,276 23,161 25,011 26,827 28,610

15% 13,824 16,581 21,820 20,109 21,820 23,496 25,139 26,750

0% 11,937 13,090 16,367 15,304 16,367 17,402 18,409 19,390

Option II

9.50% 10.0% 10.5% 11.0% 11.5% 12.0% 12.5% 13.0%

40% 1,008 5,387 7,781 10,142 12,472 14,770 17,037 19,27434% (0) 4,128 6,439 8,715 10,958 13,167 15,343 17,487

25% (1,845) 1,736 3,844 5,915 7,951 9,952 11,919 13,852

20% (3,037) 159 2,117 4,037 5,922 7,772 9,588 11,371

15% (4,344) (1,586) 196 1,941 3,652 5,329 6,972 8,582

0% (8,930) (7,777) (6,655) (5,563) (4,500) (3,465) (2,458) (1,477)

Option III

Tax retax Interest

9.50% 10.0% 10.5% 11.0% 11.5% 12.0% 12.5% 13.0%

40% (5,313) 18,031 24,246 22,210 24,246 26,247 28,213 30,147

34% (6,884) (2,756) (445) 1,832 4,074 6,283 8,459 10,604

25% (9,551) (5,970) (3,862) (1,790) 245 2,246 4,213 6,14620% (11,189) (7,993) (6,036) (4,115) (2,230) (380) 1,436 3,219

15% (12,935) (10,178) (8,396) (6,650) (4,939) (3,263) (1,620) (9)

0% (18,798) (17,645) (16,522) (15,430) (14,368) (13,333) (12,325) (11,345)

Option IV

Tax retax Interest

9.50% 10.0% 10.5% 11.0% 11.5% 12.0% 12.5% 13.0%

40% (11,804) 159 2,117 4,037 5,922 7,772 9,588 11,371

34% (13,952) (9,824) (7,513) (5,236) (2,994) (785) 1,391 3,535

25% (17,464) (13,882) (11,775) (9,703) (7,667) (5,667) (3,700) (1,767)

20% (13,952) (9,824) (7,513) (5,236) (2,994) (785) 1,391 3,535

15% (21,757) (19,000) (17,218) (15,472) (13,761) (12,085) (10,442) (8,831)0% (28,930) (27,777) (26,655) (25,563) (24,500) (23,466) (22,458) (21,477)

Pretax InterestTax

TaxPretax Interest


15/19

Option III vs Faulhaber

Tax retax Interest

9.50% 10.0% 10.5% 11.0% 11.5% 12.0% 12.5% 13.0%

40% 6,887 25,113 26,274 14,314 16,350 13,479 10,633 7,812

34% 7,334 5,940 2,804 (5,597) (3,355) (6,378) (9,365) (12,317)

25% 7,941 5,426 1,529 (8,140) (6,104) (9,842) (13,529) (17,166)

15% 8,536 4,599 (200) (11,286) (9,575) (14,154) (18,663) (23,102)

Option IV vs Faulhaber

Tax retax Interest

9.50% 10.0% 10.5% 11.0% 11.5% 12.0% 12.5% 13.0%

40% 396 (343) (3,004) (10,566) (8,237) (10,811) (13,356) (15,874)

34% 265 (1,128) (4,264) (12,665) (10,423) (13,447) (16,434) (19,385)

25% 29 (2,487) (6,384) (16,052) (14,017) (17,755) (21,442) (25,079)

15% (287) (4,223) (9,022) (20,108) (18,397) (22,976) (27,485) (31,924)


16/19

Option III vs HonshuTax

9.50% 10.0% 10.5% 11.0% 11.5% 12.0% 12.5% 13.0%

40% 31,115 49,095 50,014 37,586 39,622 36,524 33,456 30,417

34% 33,143 31,448 28,017 19,045 21,287 17,987 14,730 11,514

25% 35,893 32,987 28,710 18,307 20,343 16,251 12,218 8,244

15% 38,565 34,134 28,854 16,844 18,555 13,532 8,591 3,730

Option IV vs Honshu

Tax

9.50% 10.0% 10.5% 11.0% 11.5% 12.0% 12.5% 13.0%

40% 24,624 23,639 20,737 12,706 15,035 12,235 9,467 6,731

34% 26,075 24,380 20,948 11,976 14,219 10,919 7,662 4,446

25% 27,980 25,075 20,797 10,394 12,430 8,338 4,306 331

15% 29,743 25,312 20,032 8,022 9,732 4,709 (231) (5,092)

Pretax Interest

Pretax Interest


17/19

1. mmmnkpopoipo


18/19


19/19

TERIMA KASIH

case 8 primus automation division

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