Le Grandior Investment Group

Investment Proposal Title: Expansion of CNG Fleet- Lower carbon monoxide emission than conventional trucks

3 September 2016

Team Members• Dawirna Wijaya• Julieanna Md. Noor• Jess Soh• Randy Zhang• Maizar S/O Abdul Kalil• Mohammed Faizal Bin Hassan• Norfarhan Bin Noeryamin• Lawrence Koh

Conventional Truck Vs Eco-Friendly Truck

Vs

Video – CNG Vehicle

• http://www.dbschenker.com.sg/log-sg-en/product_services/eco_solutions/dbSchenkerAdvantage.html

Contents• Objective• Net Present Value (NPV)• Internal Rate of Return (IRR)• Payback period• Accounting Rate of Return (ARR)• Conclusion

Objective - Expansion of Fleet• Based on annual travel of 70,000 km, each new Iveco Daily 35S14G EEV

truck is expected to reduce annually 3.2 tonnes of CO2 or 20% CO2 reduction compared to a similar truck fueled with diesel.

• “As a global transport and logistics provider we are aware of our responsibility towards the environment. Therefore, we rely on one of the most eco-friendly fuels on the market: compressed natural gas”, said Mr. Albin Budinsky, CEO DB Schenker Logistics in Germany. The strategy of the DB Schenker group is to reduce its specific CO2  emissions until 2020 by 20 percent.

COMMITMENT SET BY 2020• To lead the freight

industry into a greener pathway.

• DB Schenker sets responsible benchmark to keep all employee, shareholder, client reminder of the importance of going GREEN.

• In-order to achieve GO GREEN policy, we have break down into 4 objective ( Green Network, Green Road, Green Terminal & Green Rail. )

Net Present Value (NPV)

• The NPV method computes the expected net monetary gain or loss from a

project by discounting all expected cash flows to the present point in time,

using the required rate of return.

• Only projects with a zero or positive net present value are acceptable.

The NPV Formula

Calculating Net-Present Value (NPV)1

(1 + r)n

interest

yearCF x DF

Net initial investment

$379 100

Useful life 5 yearsRecurring cash flows

$100 000

Required rate of return

8%

Total present value

Present value of $1 discounted at 8%

Cash flows at end of year (Year 0)

Cash flows at end of year (Year 1)

Cash flows at end of year (Year 2)

Cash flows at end of year (Year 3)

Cash flows at end of year (Year 4)

Cash flows at end of year (Year 5)

Net initial investment

$379 100 1.000 $379 100          

$92 600 0.926   $100 000        $85 700 0.857     $100 000      $79 400 0.974       $100 000    $73 500 0.735         $100 000  $68 100 0.681           $100 000

Net present value

$20 200              

Recurring cash flows

EvaluationProjects with a positive net present quality are worthy, in light of the fact that the return from these activities surpass the expense of capital (the return available by investing the capital somewhere else).

From the net present-value calculated, our project will be profitable!

Drawbacks of using NPV:• Requires to make projections, therefore not 100% accurate.

Advantages of NPV:• Able to determine whether the project will increase your firm's value. The NPV calculation reveals the dollar amount that the project will produce.

• Considers when the project will earn income. For example, some projects may not have a positive cash flow until the third year. Some projects will start contributing to profits in the first year

• The present value of a project is expressed in a dollar amount. Some business managers would rather see a percentage or rate of return.

• It can be used in situations where the required rate of return varies over the life of the project.

Internal Rate of Return (IRR)

• Purpose / Function : Is the interest rate at which the net present value of all the cash flows (both positive and negative) from a project or investment equal zero. Internal rate of return is used to evaluate the attractiveness of a project or investment.

• Pros : 1) Simplicity. 2) Time value of money.

• Cons : 1) Does not measure company size. 2) Conflicting answers when compared to NPV.

Note : Must be used with other methods.

Company Internal Rate of Return (IRR)Capital Investment $379,100.00

Recurring Cash Flow $100,000.00 Period of Years 5 Years

Trial and ErrorIRR 5% 10% 8%

Timeline Period

Year 0 -$379,100.00 -$379,100.00 -$379,100.00 Year 1 $100,000.00 $100,000.00 $100,000.00 Year 2 $100,000.00 $100,000.00 $100,000.00 Year 3 $100,000.00 $100,000.00 $100,000.00 Year 4 $100,000.00 $100,000.00 $100,000.00 Year 5 $100,000.00 $100,000.00 $100,000.00

Total Present Value $432,947.67 $379,078.68 $399,271.00

Net Present Value $53,847.67 -$21.32 $20,171.00

Working Calculation5% 10% 8%

( 1 + IRR) ^ Periodic Year ( 1 + IRR) ^ Periodic Year( 1 + IRR) ^ Periodic

Year1.05 $95,238.10 1.1 $90,909.09 1.08 $92,592.59

1.1025 $90,702.95 1.21 $82,644.63 1.1664 $85,733.88 1.157625 $86,383.76 1.331 $75,131.48 1.259712 $79,383.22

1.21550625 $82,270.25 1.4641 $68,301.35 1.360488

96 $73,502.99

1.276281563 $78,352.62 1.61051 $62,092.13

1.469328077 $68,058.32

** Present Value = Flow Value / ( 1 + IRR) ^ Periodic Year

DB Schenker Payback Period

5 Years Basis

• DB Schenker invested $379,100 in more efficient Carbon reduce trucks.

• The cash savings from the new equipment is expected to be $100,000 per year for 5 years. The payback period is 5 years ($$379,100 divided by $100,00 per year).

Formula

Advantages and DisadvantagesAdvantages of payback period

• Payback period is very simple to calculate.

• It can be a measure of risk inherent in a project. Since

cash flows that occur later in a project's life are

considered more uncertain, payback period provides an

indication of how certain the project cash inflows are.

• For companies facing liquidity problems, it provides a

good ranking of projects that would return money

early.

Disadvantages of payback period

• Payback period does not take into account

the time value of value which is a serious

drawback since it can lead to wrong decisions.

A variation of payback method that attempts to

remove this drawback is called discounted

payback period method.

• It does not take into account, the cash flows

that occur after the payback period.

Sketch of Relevant Cash Flows at End of YearYear 0 Year 1 Year 2 Year 3 Year 4 Year 5

($372,890)

($6,210)

($379,100)

$100,000 $100,000 $100,000 $100,000 $93,790

$0

$6,210

($379,100) $100,000 $100,000 $100,000 $100,000 $100,000

Straight-line DepreciationTerminal Disposal Value

Recovery of Working Capital

Total Relevant Cash Flows

Initial Euro Truck Investment

Initial Working Capital Investment

Net Initial Investment

Recurring Operating Cash Flows

EURO TRUCK – ACCOUNTING RATE OF RETURN

• Non-cash flow method to evaluate an investment.

• An accounting measure of income divided by an accounting measure of investment.

• Also known as Return on Investment.

Accounting Rate of Return (ARR) =Increase in expected Average Annual Operating Profit

Net Initial Investment

ARR Breakdown

Average Operating Profit – Straight Line Depreciation of the Euro Trucks

Calculating Average Operating Profit:

Year1 Year 2 Year 3 Year 4 Year 5

=(100,000 x 4) + 93,790

5

= $98,758

Straight Line Depreciation = Initial Investment divide by the period.

= 372,890 ÷ 5

= $74,578

Accounting Rate of Return = Average Operating Profit – Straight Line Depreciation of the Euro Trucks

Net Initial Investment

Therefore…

Accounting Rate of Return (ARR) =$24,180

$379,100

= 0.06378

Convert to percentage

= 6.4%

Evaluation:• The Required Rate of Return is set at 8%.

• Based on ARR, the investment would receive 6.4% of returns, because the return is lower than the RRR of 8%, the investment should be rejected.

Drawbacks of using ARR:• ARR method does not take into account cash flow from the investment,

this method only focuses on accounting net operating income.

• ARR method does not take into account the time value of money. Under this method a dollar in hand and a dollar to be received in the future are considered of equal value.

Advantages of ARR:• It looks at the profitability of the project, which is the key issue for investors • or shareholders.• Simple and straightforward method that provides percentage return,

which can be compared with the target return.

ConclusionType of Investment Techniques

Yes No Remarks

Net Present Value (NPV)

✓✓ From the calculations, a positive NPV was derived, therefore this is a project

worth investing in.Accounting Rate of Return (ARR)

✓✓ As the ARR acquired was 6.4% which was lower than the RRR of 8%, it is not

feasible to invest in this project.

Payback Period ✓✓ The payback period calculated is 3.3 years which is lesser than the project

period, therefore this is a project worth investing in.

Internal Rate of Return (IRR)

✓✓ It has been derived from calculations, that through IRR this project is feasible.

The RRR set was 8% and the IRR calculated was 10%.

Thank you!