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HDPE Pipe Manufacturing Project Project Selection

TF Pipes is considering investing in HDPE pipe manufacturing. Three models were used to evaluate the project: 1. The competitive necessity model showed major competitors already producing HDPE pipes, requiring TF to enter the market to remain competitive. 2. The comparative benefit model found HDPE pipes would generate higher profits than expanding their existing product line. 3. A weighted scoring model assessed HDPE and UPVC pipes against criteria like durability, flexibility, and costs. HDPE pipes scored higher, indicating it as the preferred option. Payback period was estimated at 5 months, and NPV analysis over 5 years found the project worthwhile with a positive NPV of $326 million. Overall the analysis supported

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Rizwan Khan
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101 views

HDPE Pipe Manufacturing Project Project Selection

TF Pipes is considering investing in HDPE pipe manufacturing. Three models were used to evaluate the project: 1. The competitive necessity model showed major competitors already producing HDPE pipes, requiring TF to enter the market to remain competitive. 2. The comparative benefit model found HDPE pipes would generate higher profits than expanding their existing product line. 3. A weighted scoring model assessed HDPE and UPVC pipes against criteria like durability, flexibility, and costs. HDPE pipes scored higher, indicating it as the preferred option. Payback period was estimated at 5 months, and NPV analysis over 5 years found the project worthwhile with a positive NPV of $326 million. Overall the analysis supported

Uploaded by

Rizwan Khan
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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HDPE Pipe Manufacturing Project Project Selection

Project Selection Models


Non-Numeric Models
1. Sacred Cow concept
Top management of TF pipes and other officers suggested this HDPE project and after all these analysis we can say that management suggested a right product.

2. The competitive necessity


When we observe pipe sector there are many major players like popular pipes and beta pipes and they had already been introduced their self to this new product line. So in order to be competitive TF must strive to enter and sustain its position in the market.

3. Comparative Benefit Model


TF pipes has two alternatives one is to expand its existing product line and other is to push its self in new line which is HDPE. If we talk in regard with comparative benefit model TF must choose an alternative with more benefit and for this the management of TF must consider following data Payback period NPV So after calculating all these and going through scoring model TF must invest in HDPE pipes because this will generate high profits than to expand its existing product line. So they must align their resources for the best utilization in HDPE pipes.

Numeric Models: Scoring


Weighted Factor Scoring Model
Criteria and Weights for Pipe

Set of criteria Durability Fllexibility Life (Years) Hardness (Shored) Logistic Laying/Installation Joints (Leak Free) Corrosion(rust) Capital Cost Weather Resistance Maintenanace Reliability Total

Numeric estimate of importance 8 8 7 4 3 4 7 6 9 5 6 6 73

Scale to measure contribution to value 0.11 0.11 0.10 0.05 0.04 0.05 0.10 0.08 0.12 0.07 0.08 0.08 1.00

Pipe selection criteria, measures and data sources Durability Flexibility Life (Years) Hardness Logistic Laying/Installation Joints (Leak Free) Corrosion(rust) Capital Cost Weather Resistance Maintenance Reliability Subjective Judgment Subjective Judgment Specification Specification, Shored Personal judgment Personal judgment Specification Subjective Judgment Project Cost Subjective Judgment Personal judgments Subjective Judgment

Scores
Criteria Durability Flexibility Life (Years) Hardness (Shored) Logistic Laying/Installation Joints (Leak Free) Corrosion(rust) Capital Cost Weather Resistance Maintenance Reliability
Criteria and Weights

1
Bad Bad <20 <40 Complex Complex Plenty High 60 M Bad Very Expensive Worst

2
Poor Poor 20-30 40-50 Difficult Difficult Many High 50 M Poor Expensive Poor

3
Adequate Adequate 30-40 50-60 Normal Normal Normal Moderate 40 M Adequate Moderate Adequate

4
Good Good 40-50 60-70 Easy Easy Few Low 30 M Good Low Good

5
Excellent Excellent 50> 70> Effortless Effortless Hardly any hardly ever 20 M Excellent Very Low Excellent

Alternatives Durability Flexibility Life (Years) Hardness (Shored) Logistic Laying/Installation Joints (Leak Free) Corrosion(rust) Capital Cost Weather Resistance Maintenance Reliability

HDPE

UPVC

5 x 0.11 = 0.55 5 x 0.11 = 0.55 4 x 0.10 = 0.38 3 x 0.05 = 0.16 4 x 0.04 = 0.16 4 x 0.05 = 0.22 4 x 0.10 = 0.38 5 x 0.08 = 0.41 1 x 0.12 = 0.12 4 x 0.07 = 0.27 4 x 0.08 = 0.33 4 x 0.08 = 0.33

4 x 0.11 = 0.44 3 x 0.11 = 0.33 2 x 0.10 = 0.19 2 x 0.05 = 0.11 4 x 0.04 = 0.16 3 x 0.05 = 0.16 2 x 0.10 = 0.19 4 x 0.08 = 0.33 3 x 0.12 = 0.37 4 x 0.07 = 0.27 2 x 0.08 = 0.16 4 x 0.08 = 0.33

Total

3.88

3.05

Numeric Models: Profit / Profitability Operating Assumptions


Hours operational per day- Three shifts Days operational per month Days operational per year
24 25 300

Key Assumptions
Annual Production Capacity (Tons) Capacity utilization (1st Year) Capacity growth rate (yearly) Maximum Capacity Utilization Production Wastage Price per Ton 2,000 25% 20% 80% 5% 200,000

1. Payback period
Initial fixed cost / estimated annual cash flows Initial Fixed Investment Estimated Annual Net Cash Inflows 60,000,000 159,000,545

Payback Period (Years) Payback Period (Months)

0.377 5

2. Average Rate of Return


Average Annual profit / Initial Investment Key Assumptions Total Costs Average Annual Profit Initial Investment Average Rate of return 85% 23,850,082 60,000,000 40%

3. Discounted Cash Flows (NPV)


Initial cash Investment ,A0 Required Rate of Return, k Inflation Rate, p Project Life, t 60,000,000 20% 5% 5 Years

Year 2012 2013 2014 2015 2016

Sales (Tons) 475 570 684 821 985

Price 200,000 210,000 220,500 231,525 243,101

Sales 95,000,000 119,700,000 150,822,000 190,035,720 239,445,007

Year A 2011 2012 2013 2014 2015 2016 Total

Inflow B 0 95,000,000 119,700,000 150,822,000 190,035,720 239,445,007 795,002,727

Outflow C 60,000,000 0 0 0 0 0 60,000,000

Net Outflow D=(B-C) -60,000,000 95,000,000 119,700,000 150,822,000 190,035,720 239,445,007 735,002,727

Discount Factor 1/(1+k+p)t 1.0000 0.8000 0.6400 0.5120 0.4096 0.3277

NPV (60,000,000.00) 76,000,000.00 76,608,000.00 77,220,864.00 77,838,630.91 78,461,339.96 326,128,835

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