1

Complex Engineering Problem(CEP)

Subject:Engineering Economics
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Group No:6
 M Anas Gulzar 2017-IM-07
 Anwaar Hussain 2017-IM-13
 Mairaj Ahmad 2017-IM-20
 Muhammad Umar 2017-IM-48

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Economics
Analysis of
Investment

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Conducted Visit to: KOT ADDU POWER

COMPANY(KAPCO)
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5 INTRODUCTION TO KAPCO

 Built by the Pakistan Water and Power Development Authority (“WAPDA”) in

1985
 Pakistan’s largest independent thermal power plant having 1600 MW installed
capacity
 Kot addu (Muzaffargarh, Punjab)
 [email protected]
 Phone # 061/544192

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6 Central
Mechanical
Workshop
(KAPCO)
 Visit to workshop
 Maintenance work of plant
 15 plus machines in workshop
 Few of them are: center lathe
machine, milling machine,
power hacksaw, welding plant,
cutters, drilling machine, shaper
machine etc.

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7

Workshop
Snaps

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Industry
8 Interested In
Replacement 0f Center
Lathe Machine

 Model: PECO-CL305
 Made in Pakistan
 Size:
max. swing=450 mm
max. job length =4200
mm

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9 Size Requirements of Industry for New
Lathe Machine
 Size of Swing over bed
900-1000 mm
 Size of job length
4500-5000 mm

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10 Reasons of Replacement

Require more
Require more
swing over bed
job length(4500-
(900-1000mm)
5000mm) for the
for machining More precision
machining of
of larger pulleys,
shafts larger in
wheels, blowers,
length
impellers etc.

Less production High production Latest

time rate machinery

More capacity

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11 Method Chosen for Economic Analysis

 The method which we used for economic analysis of machines is net

present worth method.
 We calculated the NPV of machines in the next slides and then did their
comparison.

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12 Data of Machine(A): PECO-CL305

 Initial investment=3.0 M
 Annual maintenance cost=0.4 M
 Annual electricity cost=0.6 M
 Annual expenses=1.0 M
 Annual revenues=24.0 M
 Useful life=15 years (assumption)
 Salvage value= 0.2 M (assumption)
 IRR=15% (assumption)

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 Calculations
13
to find NPV for
Machine A
Cashflow diagram

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 PW at EOY 0= -3000000 = -3.0 M
14 *PW at EOY 1 = 20000000 =20 M
PW at EOY 2 = 17391304.35 =17.3 M
PW at EOY 3 = 15122873.35 =15.1 M
PW at EOY 4 = 13150324.65 =13.1 M
PW at EOY 5 = 11435064.91 =11.4 M
.
.
.
.
.
.
.
.
PW at EOY 15 = 2851152.057 =2.8 M

Net Present Value= Rs.113514091.2

= 113.51 M

*PW at EOY 1=F(1+i)^-N

=(2400000-1000000)(1+0.15)^-1 12/20/2019

=20 M
15 Two Alternate Solutions for
Replacement
 Found two alternate solutions
 One is center lathe machine from China
 And the other is from Japan
 Both are meeting the requirements of company
 Both has same size, same productivity rates
 But the initial investment cost, annual expenses and annual revenues for
both are different
 Specification of both machines are in the next slide

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16 Specifications of Both Machines

Machine B Machine c
 Center lathe machine (manual)  Center lathe machine(manual)
 Model: CW62100C  Brand: HOWA
 Country: China  Model: Strong ST-1500
 Size:  Country: Japan
Max. swing over bed=1000mm  Size:
Max. job length=4500mm Max. swing over bed=900mm
Max. job length=4500-5000mm

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Machine B

Center lathe machine (manual)

Model: CW62100C

17

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Machine c

Center lathe machine (manual)

Model: HOWA Strong ST-1500

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19 Data for Machines B&C

Machine B Machine C
 Initial investment=3.8 M  Initial investment=7 M
 Annual maintenance cost=0.6 M  Annual maintenance cost=1 M
 Annual electricity cost=1 M  Annual electricity cost=1.5 M
 Annual expenses=1.6 M  Annual expenses=2.5 M
 Annual revenues=36 M  Annual revenues=36 M
 Useful life=15 years (assumption)  Useful life=15 years (assumption)
 Salvage value= 0.25 M  Salvage value= 0.3 M
(assumption) (assumption)
 IRR=15% (assumption)  IRR=15% (assumption)

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20 Calculations to find NPV
for Machine B

Cash flow diagram

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 PW at EOY 0= -3800000 = -3.8 M
21 *PW at EOY 1 = 29913043.48 =29.9 M
PW at EOY 2 = 26011342.16 =26.0 M
PW at EOY 3 = 22618558.4 =22.6 M
PW at EOY 4 = 19668311.65 =19.6 M
PW at EOY 5 = 17102879.69 =17.1 M
.
.
.
.
.
.
.
.
PW at EOY 15 = 4196846.67 =4.1 M

Net Present Value= Rs.197318707.6

= 197.31 M

*PW at EOY 1=F(1+i)^-N

=(36000000-1600000)(1+0.15)^-1 12/20/2019

=Rs.29913043.48 =29.9 M
22 Calculation of NPV for
Machine C
Cash flow diagram

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 PW at EOY 0= -7000000 = -7 M
23 *PW at EOY 1= 29130434.78 =29.1 M
PW at EOY 2 = 25330812 =25.3 M
PW at EOY 3 = 22026793.79 =22.0 M
PW at EOY 4 = 19153733.73 =19.1 M
PW at EOY 5 = 16655420.63 =16.6 M
.
.
.
.
.
.
.
.
PW at EOY 15 = 4153833.6 =4.1 M

Net Present Value= Rs.188923764.9

= 188.92 M

*PW at EOY 1=F(1+i)^-N

=(36000000-2500000)(1+0.15)^-1 12/20/2019

=Rs.29130434.78 =29.1 M
24 Conclusions And Recommendations

As the NPV for machine A in the workshop came lower than machine B and C,
so it means machine B and C will generate more profit than machine A but if
we compare machines B and C then as it is clear from above calculations
NPV for machine B is higher than C . So, it means machine B will generate
more profit for the company. So, we will recommend machine B for the
replacement in central mechanical workshop at KAPCO.

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Thank you!
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