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6050 Group Project Report v4.0

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    Project: New Computer

    Product

    City University of Hong Kong

    Department of System Engineering and Engineering

    Management

    MEEM 6050 Engineering Economic Analysis (Semester A,

    2011-12)

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    MEEM 6050 Engineering Economic Analysis Group Project Report

    Student Name Student number

    LU Shan 52541490

    LI Xi 52410662

    XU Sha 51982297

    CHEN Pengyu 52472302

    YAO Mo 52467562

    REN Yanling 52302337

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    MEEM 6050 Engineering Economic Analysis Group Project Report

    Abstract

    The company depends on their current finance situation to set objectives to make our

    company as one of the listed companies in Hong Kong. To achieve this aim, our

    company designs two types of PC products. According to break-even analysis,

    sensitivity analysis and scenario analysis, we find the break-even point of demand and

    the different IRR of two products. To make the best profits, we choose product two

    eventually.

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    MEEM 6050 Engineering Economic Analysis Group Project Report

    Table of Contents

    1 Introduction...........................................................................................................2

    2 Problem Definition................................................................................................2

    3 Setting Objectives..................................................................................................2

    4 Financial Statements.............................................................................................2

    4.1 Balance Sheet.........................................................................................2

    4.2 Income Statement....................................................................................2

    4.3 Cash Flow Statement................................................................................2

    4.4 Debt Management Analysis........................................................................2

    4.5 Liquidity Analysis....................................................................................2

    4.6 Asset Management Analysis.......................................................................2

    4.7 Profitability Analysis................................................................................2

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    5 Alternative Identification, Evaluation and Selection (Computer)....................2

    5.1 Alternative Products.................................................................................2

    5.2 Marketing Strategy...................................................................................2

    6 Alternative Identification, Evaluation and Selection (Finance)........................2

    6.1 Alternative Selection................................................................................2

    6.2 Bank loan offer and Selection.....................................................................2

    7 Risk Management..................................................................................................2

    7.1 Break Even Analysis.................................................................................2

    7.2 Sensitivity Analysis..................................................................................2

    7.3 Scenario Analysis....................................................................................2

    7.4 Recommendation.....................................................................................2

    8 Conclusion..............................................................................................................2

    Conclusion

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    MEEM 6050 Engineering Economic Analysis Group Project Report

    1 Introduction

    Ocean is a computer manufacturing company, established by LU Shan, XU Sha, LI

    Xi, REN Yanling, YAO Mo, and CHEN Pengyu in November 2009. Headquartered in

    Hong Kong, the company has a production factory, in which have totally 5

    departments and 100 workers. The objective of our company is to become one of

    listed companies in Hong Kong after 5 years. We want to attract some external

    investors to invest our business, and the proposal of our company development as

    follows.

    2 Problem Definition

    Based on Hong Kong business circumstance nowadays, the competitive situation is

    much harsh than the previous one we understood, especially for computer and

    electronic industries. For long-term development to achieve the organizational goals,

    we are facing following problems:

    To develop new products to capture market share;

    Lack of initial capital for the new products R&D and manufacture.

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    MEEM 6050 Engineering Economic Analysis Group Project Report

    1 Setting Objectives

    As mentioned above, we have the aim and mission to fulfill. There is no doubt that,

    Hong Kong is a perfect place to start up an industry, even several economic crisis still

    leaves impacts on the financial market. We already have factory plant, manufacturing

    line, material and component supplier, and human resources, both engineers and

    salesman included. Thus, we definitely have the plan to develop a brand new product

    that can take over percentages of computer market, and establish a sustainable

    developed company image in the long run.

    Our aim is to make our company as one of the listed companies in Hong Kong. As

    Hong Kong market has long history, it has high requirement and reputation to the

    candidate companies. If we want to be the listed company, several requirements and

    objects we have to fulfill at one, before we enjoy the benefit from Hong Kong stock

    market, such as credit extending.

    Therefore, we set up four targets:

    Net income of the first year should above 2 million HKD;

    Total income of three years should above 5 million HKD;

    Gross margin should above 25% or more;

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    MEEM 6050 Engineering Economic Analysis Group Project Report

    Net after-tax profit should above 15% of sales income.

    1 Financial Statements

    As it is a 2-year running company, first and foremost, we tend to show the financial

    statements of past 2 years and give a brief analysis for our financial status.

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    MEEM 6050 Engineering Economic Analysis Group Project Report

    in HK dollars (000)Period Ending year 1 year 2

    Assets

    Current Assets

    Cash And Cash Equivalents 8,884 11,281

    Short-Term Investments 5,732 11,894

    Net Receivables 4,570 5,843

    Inventories 359 484

    Other Current Assets 1,342 3,363

    Total Current Assets 20887 32865Long-Term Investments

    Property Plant and Equipment 1,739 2,332

    Goodwill 36 197Intangible Assets 363 334

    Accumulated Amortization

    Other Assets 998 609

    Deferred Long-Term Assets Charges 84 1,166

    Total Asset 24,107 37,503

    Liabilities

    Current Liablities

    Accounts Payable 6,019 9,568

    Short/Current Long-Term Debt

    Other Current Liabilities 3,568 6,921

    Total Current Liabilities 9,587 16,489Long-Term Debt

    Other Liabilities 798 985

    Deferred Long-Term Liability Charges 5,026 6,952

    Minority Interest

    Negative Goodwill

    Total Liablities 15,411 24,426Stockhoders' Equity

    Preferred Stock

    Common Stock 5100 6818

    Retained Earnings 8646 13153

    Treasury Stock

    Capital Surplus

    Other Stockhoder Equity 60 7.6

    Total Stockholder Equity 13806 19978.6

    BALANCE SHEET

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    Table 4.1 Balance Sheet

    4.2 Income Statement

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    MEEM 6050 Engineering Economic Analysis Group Project Report

    in HK dollars (000)

    Period Ending year 1 year 2

    Total Revenue 22,806 30,855Cost of Revenue

    Direct labor4,120 5,572

    Material 3,568 4,765

    Overhead 3,335 4,230

    Depreciation 4,036 5,700

    Tatal Cost of Revenue 15,059 20,267

    Gross Profit 7,746 10,588Operiating Expenses

    Research Development 1,503 1,054

    Selling Generaland Administrative 2,815 3,573

    Operating Income or Loss 3,428 5,961Income from Continuing Operations

    Total Other Income/Expenses Net 569 589

    Earning Before Interest And Taxes 3,997 6,550Interest Expense 0 0

    Income Before Tax 3,997 6,550

    Income Tax Expense 660 1,081

    Minority Interest - -

    Net Income 3,337 5,469

    INCOME STATEMENT

    Table 4.2 Income Statement

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    MEEM 6050 Engineering Economic Analysis

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