Capital equipment
Discuss There are 4 types of buyers: Consumer product buyer Industrial product buyer Resale product buyer Service buyer Gi...
Type of purchases Capital equipment Production materials MRO (Maintenance, repair, operating supplies)
Capital investment purchase Centralized purchase Decided by buy centre The greater the technical nature, the greater the i...
Capital equipment  Capital investment items Durability, productivity, tangibility E.g. Buildings, plant, machines, tools, ...
Factors influence buying capital equipment Purpose Flexibility – can it be used for other purpose? Spares Compatibility Re...
New or used equipment? Efficiency? Price? Guarantee? Credit terms? Less maintenance? Government finance? Availability of r...
Financing the acquisition Straight buy Hire purchase Leasing
Lease or buy? Operating factors Trial period? Legal factors Terms and conditions Financial factors Opportunity cost of cap...
Selecting suppliers Technical factors  The greater the technical nature and complexity, the higher the influence of techni...
Evaluating capital investment Techniques Payback Average rate of return Discounting Net present value(NPV)
Payback approach Time required for cash returns to equal the initial cash expenditure Example 13.2, page 477
Average rate of return Annual rate of depreciation (Cost – residual value) / Lifespan(Years)  ROCE =  Average annual profi...
Net present value (NPV) A higher return if  “ Sum of the discounted cash flows” > initial investment Read page 479
Discuss Identify and assess capital equipments purchase techniques for ‘DimS’. (Table B)
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105capital equipment

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105capital equipment

  1. 1. Capital equipment
  2. 2. Discuss There are 4 types of buyers: Consumer product buyer Industrial product buyer Resale product buyer Service buyer Give examples of items these buyers purchase
  3. 3. Type of purchases Capital equipment Production materials MRO (Maintenance, repair, operating supplies)
  4. 4. Capital investment purchase Centralized purchase Decided by buy centre The greater the technical nature, the greater the influence of technical staff
  5. 5. Capital equipment Capital investment items Durability, productivity, tangibility E.g. Buildings, plant, machines, tools, furnishing and fitting etc Factors to consider when buying capital equipment New or used equipment
  6. 6. Factors influence buying capital equipment Purpose Flexibility – can it be used for other purpose? Spares Compatibility Reliability Durability Cost of maintenance Cost of operation etc (Page 466 – 467)
  7. 7. New or used equipment? Efficiency? Price? Guarantee? Credit terms? Less maintenance? Government finance? Availability of repair parts? Etc (Page 469)
  8. 8. Financing the acquisition Straight buy Hire purchase Leasing
  9. 9. Lease or buy? Operating factors Trial period? Legal factors Terms and conditions Financial factors Opportunity cost of capital “ How to work out whether it is best to lease or buy” – see page 473
  10. 10. Selecting suppliers Technical factors The greater the technical nature and complexity, the higher the influence of technical staff Technical evaluation (Page 475) Weighting factors (Page 476) Cost factors Extra cost, e.g. insurance, terms of payment etc
  11. 11. Evaluating capital investment Techniques Payback Average rate of return Discounting Net present value(NPV)
  12. 12. Payback approach Time required for cash returns to equal the initial cash expenditure Example 13.2, page 477
  13. 13. Average rate of return Annual rate of depreciation (Cost – residual value) / Lifespan(Years) ROCE = Average annual profit after depreciation/Capital invested
  14. 14. Net present value (NPV) A higher return if “ Sum of the discounted cash flows” > initial investment Read page 479
  15. 15. Discuss Identify and assess capital equipments purchase techniques for ‘DimS’. (Table B)

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