The Process of Buying a Caterpillar 950H - Assignment Example

Report about Caterpillar 950H 1. 2.1.1 The Interest rate changes – up, down, or static, and how much 3 Interest rate has to be factored in because it is used to determine how much will be paid at the end of the day. We have two common types of interest rate. They include the variable rate and fixed rate. The variable rate keeps on changing and can increase or reduce depending on the various market forces while the fixed rate does not.When the interest rate is lowered, that will definitely help in the reduction of total amount to be paid and the opposite is also true. While putting together this report we assumed that the interest rates will remain constant. In our case we assumed that the interest rate will be low so that the caterpillar can be bought at a slightly lower cost. 3 1. INTRODUCTION These days the process of buying a caterpillar 950H has increasingly become very complicated in the sense that there are so many in the market and distinguishing one from the other is a bit of a problem. This is because different manufacturers from different countries for instance France and Belgiumhave different makes of the same machine. Different people have different needs and specification when it comes to what they are looking for in a not just good but strong Caterpillar 950H. However, one of the biggest problem has been that most individuals and organizations lack adequate cash to procure the best Caterpillar 950H which always turns out to be extremely expensive and quite a fortune can be spent to acquire one. They range from 70,000€-100,000€.According to Park, C S, (2007), many people have always had to settle for that which is not what they really desire but for the sake of convenience. And again many people have always lacked the best advice in regard to where and how to access financial advice. Because of that, most banking organizations and related financial institutes have come up with attractive products and services to lure people into approaching them to not only provide advice but also loan facilities to purchase heavy machinery like the Caterpillar 950H with the best specifications at affordable prices. This report as been prepared to provide a guide on how to purchase a strong and efficient caterpillar 950H that is economical in as far as fuel consumption is concerned. In the very first part of this report, we delved into making assumptions and a number of variables are critically studied by use of evaluation criteria. The MARR value is also estimated and calculated to arrive at the exact cost of a good strong Caterpillar 950H. Then we also have quite extensive analysis on many other features that have to be taken in consideration. Furthermore, we have prepared the elaborate purchasing decision and process of the caterpillar. Not forgetting the recommendation is included. 1. EVALUATION CRITERIA The report has also gone further to detail some of the many financing options and advice that can be accessed when scouting for a good caterpillar 950H that is durable and economic on fuel consumption. The report details some calculations for the sake of assisting in the provision of advice and financial options. Basically our evaluation criterion is entirely based on the financing option by either personal loan or leasing option. Our two financing options will entail proposal to have flexible payment and that will also include more friendly terms. 2.1 Assumption In any study, before researchers go out there in the field to carry out their research, there are quite many assumptions they have to make. These assumptions are necessary for they aid in the prediction or the direction the whole process will take and the ease with which the caterpillar will be procured. Without some of these assumptions, the study is likely not to take the desired direction. For instance the changes in the interest rates may be up or down or even static. The insurance parametersand inflation are among other many factors that will be taken in consideration. 2.1.1 The Interest rate changes – up, down, or static, and how much Interest rate has to be factored in because it is used to determine how much will be paid at the end of the day. We have two common types of interest rate. They include the variable rate and fixed rate. The variable rate keeps on changing and can increase or reduce depending on the various market forces while the fixed rate does not.When the interest rate is lowered, that will definitely help in the reduction of total amount to be paid and the opposite is also true. While putting together this report we assumed that the interest rates will remain constant. In our case we assumed that the interest rate will be low so that the caterpillar can be bought at a slightly lower cost. 2.1.2 Inflation – up, down or static, and how much Inflation does affect many sectors and the heavy machinery industry is not an exception .This is a factor that has to be put in consideration. Inflation in this particular context is used to describe the rate at which the general level of prices of goods and services is rising, and hence negatively affecting the purchasing power.Due to this, we felt that the inflation rate will inevitably have a great effect on the price of the caterpillar 9500H to be procured. 2.1.3 Insurance parameters A lot of considerations had to be put in account considering the fact that most of the insurance companies put a lot of premium on aspects like where the owner lives-location, his or her age, history of the caterpillar that is if it is second hand and not forgetting the year that particular caterpillar 950H was manufactured as a vital parameters that assists in coming up with an estimate cost of its insurance. In this particular case, it was assumed that the caterpillar 950H we were to buy was brand new as opposed to a second hand machine and our insurance company of choice was ANZ insurance. 2.1.4 Car usage km/yr Here we had to look at the durability, strength and efficiency of the car. How long the car can take before being taken in for checkups.The distance that the caterpillars 950H can do per year had to be taken in consideration.In our case, we assume that the car will not be used for long distances and that limited amount of fuel will be used. And that we intend to use the caterpillar for heavy works. 2.1.5 Petrol price changes Here we had to look at the average amount of fuel that will be consumed by the caterpillar-considering the fact that this is a heavy machine and its fuel consumption is quite high, throughout the year considering the fact that prices always keep on changing. Based on the petrol price historical of many countries, approximately 10% increase in the price is occurring every year. In our case, we assumed that the petrol price will increase by 10% every year. (http://www.exploroz.com/OntheRoad/FuelPrices/NSW.aspx) Figure 1: Historical inflation rate data Source: http://www.exploroz.com/OntheRoad/FuelPrices/NSW.aspx 2.2 Variables 2.2.1 Maintenance costs Maintaining a caterpillar 950H is one of the most difficult things for anyone who owns one. Maintenance plays a very vital role if a caterpillar and therefore any other heavy machinery equipment is to last longer. As mentioned before, in our report we are assuming that the caterpillar 950H will be used for a distance of 15000 kilometers per year. Below are some of the estimated costs of maintenance. $40 for changing engine oil after each and every 5000 kilometers. $30 will be spent on changing of the oil filter after each and every 10,000 kilometers. $40 will be spent on changing of the air filter every year. $200 for changing the caterpillars 950Hbattery every 2 years. $100 will be spent for changing the brake pads every year. $650 for changing the tires after every 2 years. Therefore, the maintenance cost per year for the new car will be: $120 for 1st year. $895 for 2ndyear. $120 for 3rd year. $1015 for 4th year. $240 for 5th year. 2.2.2 Petrol consumption and price According to Exploroz.com (2008) petrol consumption of any machine is something that has to be considered .This is one of the areas that really matters when it comes to purchasing this caterpillar 950H.Caterpillars are well known for their high fuel consumption due to the heavy nature of work they do. The caterpillar 950H to be purchased has to have a relatively low fuel consumption to help in saving of money spent on fuel. The fuel consumption for the car has to be discussed and agreed upon. 2.2.3 Salvage value This basically refers to the ability of reselling the caterpillar 950H and still making some good money. For the caterpillar to have some reasonable salvage value, we are assuming that it will be resold to another individual after a period of five years. Also, we are assuming that the fuel saving caterpillar 950H price will decrease by 10% every year. From this we believe that the salvage value for the said car will be a bit higher. 2.2.4 Insurance costs According to ANZ Bank (2008), the insurance coast has to be looked into for the sake of securing the motor against any problems.The insurance cost of the caterpillar 950H was looked into and we had to choose an insurance company that is capable of providing compensation in good time. For that matter the third party insuring costs in ANZ insurance will be a proximately $100 for the caterpillar 950H. 2.2.5 Financing options There are so many so many financing options at our disposal. We actually have like five different financing options which are offering different attractive interest rates. We had to scrutinize them one by one and felt that we should work with one that provides us with the friendliest terms. According to the ANZ bank, the interest rate for the caterpillar 950H that is strong, durable and has friendly fuel consumption is as follow. 13.36% for loan financing option. 12.93% for lease financing option. 2.2.6 Inflation This was arrived at after examining the fact that different country and their respective inflationrates. Mostdeveloped countries have an inflation rate of a proximately 3% annually. Inflation does affect most sectors of the economy not just the heavy motor industry. In our case, we decided to use an inflation rate of approximately 3% . 2.2.7 Registration The caterpillar 950H registration is a necessity that we cannot do without. It is a must we register the caterpillar 950H for the sake of authenticity.Registration requires some good amount of money which in our study we had to consider. Registration has to take place for so many other reasons like protecting the caterpillar from fraud and ensuring that the caterpillar is genuine. 1. COVERAGE We were compelled to choose caterpillar 950H due to a host of reasons.The selected caterpillar 950H was because of not just its durability, strength and relatively lower price but also its relatively low fuel consumption. 3.1 Selected Financial Options In our report we have two main financial choices which we used to make our decision of purchasing a caterpillar 950H. The first option, loan from ANZ (Australia & New Zealand Banking Corporation) as financial institution was chosen. They have very attractive interest rates. The other option we have is leasing from ANZ. This is an attractive package with very good interest rates. 2. EXPLANATION of MARR MARR plays quite a vital role in determining the returns and also helps in making some other financial decisions. This closely affects the marginal cost.The increase in the value of money can be estimated by using the assumptions discussed above. Due to the fact that we are getting this money from the lender who happens to be a bank, the Minimum Attractive Rate of Return (MARR) should be equal to the marginal cost of capital. Below is an equation that can be used to calculate MARR: MARR = Inflation rate + Discount rate + Depreciation rate + Risk of failure 5 THE FORMULA FOR CALCULATION Minimum Attractive Rate of Return has to be calculated using the following formula. MARR = Inflation Rate + Discount Rate + Depreciation Rate + Risk of failure 6 REPLACEMENT ANALYSIS The kind of replacement analysis has quite a number of choices.We decided that we will make the final decision and that will be taken from the lowest cost point of view after we have done all the necessary and relevant calculation that includes all the crucial financial factors. This decision is the most economical option to consider for the buyer who is looking for the performance factor. 7RECOMMENDATION After keenly scrutinizing our data there are a number of recommendations we came up with.From the basis of our study of this particular assignment, we have observed many points to be considered as vital factor to the buyer decision. The buyer should be aware of the changed parameters that will affect the decision. For instance, variables such as maintenance cost, registration and fuel cost have a direct impact on the cash flow and net present worth (NPW). So, buyer has to be very careful taking accurate data. 8CONCLUSIONS Following the above analysis,we have done all the relevant calculations in order to come up with the final decision for purchasing this durable and strong caterpillar 950H. It has been based on similar caterpillar 950H manufacture and similar performance factor. This purchasing process will be via loan or lease financing institution. References: http://www.cat.com/cda/layout?m=308907&x=7 http://noticias.uol.com.br/cotidiano/2009/08/12/ult5772u4933.jhtm http://www2.alo.se/Intl/Pages/history.ept Ålö history: From innovation to world-leading position "Cat backs plan to cut school bus emissions". Trailer/Body Builders. Retrieved 2012-09-22 "Diesel Engine School Bus Retrofit Technology Workshop, Baltimore, MD, April 29, 2004". Maryland Department of the Environment.Retrieved 2012-09-22. "$12 Million from Caterpillar Inc. to The Nature Conservancy Launches Ambitious Global Freshwater River Project and Establishes a Great Rivers Center". The Nature Conservancy.Archived from the original on December 14, 2006.Retrieved 2012-09-22. "WBCSD member companies".World Business Council for Sustainable Development. 2007-08-03. Archived from the original on July 13, 2007. Retrieved 2012-09-22. "Dow Jones Sustainability World Index Recognizes Caterpillar's Leadership for the Fifth Consecutive Year.".PRNewswire. 2005-09-21. Retrieved 2012-09-22. "Six Diesel Engine Companies". Clean Air Villain of the Month. Clean Air Trust. 2000-08-01. Retrieved 2012-09-22. "Justice Department Announces FY2003 Record Year For Recovery Of Civil Penalties In Environmental Cases". United States Department of Justice. 2003-12-16. Retrieved 2012-09-22. 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