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Hundson Ready-Mix

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Submitted By vs32
Words 1194
Pages 5
Executive summary
A new product that is mounted on the back of the ready mix concrete track is now available on the market. This new product saves labor and time while it increases the sale value of cubic yard of concrete produced.
This report evaluates the economic profit/loss of the decision to invest on the new product. The analysis is done for the range of values of average yearly production and utilizations rates as they are reported on the market.
The analysis showed that the company should invest on the new product only if it can achieve a utilization rate of 20% with a yearly production of at least 5000 cubic yards of concrete or a utilization rate of 25% with a yearly production of at least 4000 cubic yards of concrete. In all the other cases included on the analysis, the company will not make a profit from the investment.
It is therefore recommended that the company invest on the new product only if it can achieve the above mentioned utilization rate and production thresholds. Since the construction company has not yet shown signs of recovery after the economic crisis of 2008, the threshold values are possible unachievable. Therefore the company should differ on the investment till the economic climate is improved and the market will start to recover.

Analysis
In order to evaluate the investment on the product the net present value of the gain/ loss was calculated. The analysis was made on a single truck basis. First the net income for all ten years was calculated.
Sales were calculated as: utilization rate x no of trips x cubic yards of cement per trip x sale value
The gross income was calculated by subtracting by the previous sum the maintenance costs. By subtracting from gross income the driver’s fees the EBITDA was calculated. The taxes were calculated by subtracting from EBITDA the depreciation cost. Then the net profit was calculated by

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