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Assignment Aim

To understand and apply the processes for life cycle costing. 

Assignment Details

You are contemplating the purchase of a new SUV for family use including towing the family caravan. You are to choose a brand  new model that has a petrol and diesel equivalent and perform a Life Cycle Costing calculation using the Net Present Value method to determine their life cycle costs, over a period of 5 years. The vehicle is to be purchased using your own funds.  As the vehicle is for private use only you should ignore any tax implications in your life cycle costing, but must consider the resale value.  

As a minimum you must provide the following information:

  • a detailed description of ALL your assumptions
  • a detailed explanation and breakdown of all costs and values used in your costing (do NOT use published all-inclusive rates per kilometre for running expenses)
  • sources for ALL the data used (with sources proven by screen shots).
  • a comprehensive explanation (with sources, proven by screen shots) for your choice of discount rate and method for handling inflation
  • a single A4 spreadsheet per LCC which shows all the relevant costs and values for the full life cycle as well as the discounting calculations.  The spreadsheets are to be in landscape layout, titled and use the following general layout for information:  detailed commentary on the outcome of the life cycle costing exercise, identifying total ownership costs of the petrol and diesel vehicles.

The assignment is to be presented in the form of a report (including an executive summary, numbered sections and headers and footers).  The number of words must be between 2400 and 3000 in total (including any tables, contents page, headers, footers and references, but excluding the cover sheet, screen shots and the A4 spreadsheet).  The word count must be stated on the front cover.  Student marks for the assignment will be reduced where the assignment is outside the word count maximum or minimum. The amount of penalty will be related to the number of words (deduct 5 marks if up to 200 words over or under, 10 marks if 201-400 words over or under, 20 if 401-600 words over or under, 50 marks if more than 600 words over or under). 

Assignment Format

The assignment must be in one-and-a-half space typing using arial font 11. All pages should be numbered. All assignments should be thoroughly checked for typing, spelling and grammatical errors before being submitted. All assignments are to be submitted electronically through Turnitin (in Blackboard).  All spreadsheets etc must be embedded within the submitted file ie no not submit them separately. Do NOT submit hard copy versions or send copies via email.

Assignment Aim

The car being chosen is Hyundai Tuscon Active, petrol and diesel versions. Both the versions have similar performance and specifications. Hence, there is very little difference between the two cars, in terms of usage. This report, therefore, presents a life Cycles Cost Analyses to analyse which car is more cost efficient.

Assumptions

  • Both car models follow the latest emission and safety standards and are safe to use.
  • All analyses are made based on 365 days in a year and 52 weekends in a year
  • Self Reported data reported on websites is unbiased and reviews are not paid reviews.
  • Sources

Data is primarily secondary research data

  • Model related specifications were obtained from Company website, including loan calculators.
  • Other source are also independent reviews .
  • Statistical data (petrol and diesel) was obtained from the relevant government website. Some non-government sources are quoted but not used for calculations.

Model Specifications

The Hyundai Tuscon Active is a 5 seat SUV that is useful for the entire family. The cars has all the key technology features that a new, high technology car for a family must have . The Petrol version of the car is called “2.0 GDi 2WD Auto” and the Diesel Model is “2.0 CRDi AWD diesel engine".

The model selected was Pepper Grey Metallic finish costs AUD 35707.40 as the drive way costs.Both models come with a 5-year warranty or a 160,000km, whichever comes first. (Hyundai Motor Company, Australia Pty Limited 2018)Hence, the analysis taken for this study has considered the period of 5 years. Costs for the car maintenance, repair and diesel are all included in this analyses.

Petrol and Diesel Specifications

Model

2.0 CRDi AWD diesel engine.

2.0 GDi 2WD petrol engine

Power Output

136 kW

121 kW

Torque

400 Nm

203 Nm

Transmission

6-speed automatic transmission

6-speed manual or automatic transmission

 The Petrol and Diesel keep fluctuation. Hence, an estimate of Petrol prices was taken from a website that helps calculate costs of living from various sources .Additionally, the fuel efficiency was calculated at 100 kilometres from 5 litres  of petrol.

Table 1Specifications for both models

Table 2 Pricing for Both Models

Pricing

2.0 Auto 2WD

2.0 CRDi Auto AWD

Manufacturer List Price

$31,090.00

$35,090.00

Metallica

$595

$595.00

MLP with options

$31.69

$35,685.00

On Road Costs (Statutory Charges, Dealer Delivery)

$4.112.40

$3,480.40

MLP with options Driveaway

$35,797.40

$39,165.40

Maximum Driveway Offer

$35,797.40

$39,165.40

Prepared by Author. Source: (Hyundai Motor Company, Australia Pty Limited, 2018)

 Costs

Driveaway Price: The “driveaway price” is the estimated average price and includes various costs such as the retail price, cost of registration, third party insurance (CTP), delivery charge to be expected from the dealer, stamp duty, and other options. There are other statutory charges that are included. The variables or the applicable costs are the same for both models being calculated and hence, will provide a good estimation of the total value. (Hyundai Motor Company, Australia Pty Limited 2018)

(Hyundai Motor Company, Australia Pty Limited, 2018)Annual Repair and Maintenance Costs: The annual repair and maintenance cost is an estimate of the amount od repair and maintenance it would take each car.  The annual cost estimate to maintain a Hyundai Tucson is approximately $326. The data for this has been taken from the website, yourmechanic.com. The figure was arrived at by averaging self reported figured from 600 mechanics and was same for both the carsFuel Consumption and Performance

Assignment Details

Diesel cars cost more because the engine quality is supposed to be better. It is expected that diesel cars emit fewer pollutants which is not only environmentally safe but also better for the health of the family. Hence, diesel cars are better when he non-cost related choices are concerned. (Cadogan 2017)

In terms of costs diesel cars may have greater upfront charges but the repair and maintenance may be low due to  various reasons. Pollutants from diesel are less likely to choke up the exhaust of the vehicle. The diesel engine has more turbo charge and is less  likely to break down over longer distances. Diesel, is in general, less flammable than petrol and this cuts down the likelihood of accidents. (Cadogan 2017)

Fuel Consumption

The energy density of diesel is better than petrol. The energy density of diesel being greater, diesel consumes less fuel to run the same distance than petrol.  According to Lab tests, petrol is consumed 23% more than diesel same distance on the same terrain. On road, this would translated into diesel having 5:4 efficiency ratio of petrol. (Cadogan 2017) This implies that for one tank fill of the Hyundai active 2.0, the petrol version will be able to go 800 kms of distance while the diesel version will go 1000 kms of distance. This is a significant cost increase , since the daily distance of the car will be high. The economy of the car was calculated using various sources. An on road experiment conducted revealed the petrol version of the car has a mileage of 7.9 liters per 100 kilometers.(Cadogan 2017) This means that 0.079 kilolitres of petrol are used to travel one kilometers.(McCowen 2017) Using the 5:4 ratio of the consumption of fuel of petrol and diesel, the economy of diesel was calculated as 6.32 liters per 100 kilometers or 0.0632 kilolitres. These calculations were used to obtain the total fuel that would be consumed to travel the total distances estimated.

 Fuel Costs

The costs of fuel change every day. Hence, it would be a mistake to calculate the costs based on current prices. Various sources can be used to estimate the average price of fuel. For example, some websites providing estimates of cost of living, suggest that the price of petrol in Perth, generally, lies between $1.20 and 1.50 per liter, with the median price being $1.33.(Numbeo 2018) The data for these estimates were collected from thousands of people who filled in the data for petrol prices on the given day. Hence, this could be a good estimate to use. However, there was no comparable diesel estimates. Hence, various other sources were considered. However, an analysis of the data provided by Australian Petroleum Institute revealed that the prices of Petrol has grown by 12,2 % last year from 122.7 cents to  142.6 cents and the prices for diesel had grown by 15% percent from 131.3 cents to 147.7 cents in the year from May 7 2017 to May 2018. (Australian Petroleum Institute 2018) This growth rate in prices or inflation was calculated the estimated costs of petrol. The actual costs of petrol may be higher or lower in the future but the ratio of the prices is not likely to change. Hence, the numbers might be different in those scenarios but the result will be similar.Table 3 Cost of Petrol/ Diesel Per Year (Estimated, All costs are in AUD)

Model Specifications

Prepared by Author. Source: Appendix: Part B

Year

Petrol

Diesel

2018-2019

1.422

1.477

2019-2020

1.638144

1.657

2020-2021

1.887

1.859

2021-2022

2.173

2.086

2022-2023

2.504

2.340

Distance Travelled everyday

The family has four members. The family resides in Wanneroo and two members of the family travel to Perth every day for work. On the way, two children are dropped at school. However, the car will be used by one person will travel to Curtin University every day, who will drop the two children. There is no detour required for the children. The estimated distance is 25.93 kilometres for a one way trip. Additionally, there are daily expected trips, such as trips for lunch, trips by other members of the family and more which are expected to be worth approximately 2 kilometres per day.

Additionally, the family takes trips every weekend to the grocery store. This amounts to a one way trip of 10 kilometers. Hence, the total is 20 kilometers per trip. Eating out and dining out, leisure trips such as trip to the Perth Beach etc. are worth 50 kilometers. Additionally, the family takes, on an average, one long out of station road trip to other places, every three months. This may include trip to a camping site, travelling on festivals to the houses of relatives and more. On an average, the distance travelled is approximately 250 kilometers per trip.

Other miscellaneous trips such as emergency trips to the hospital, school etc. are estimated to be 250 kilometers for the whole year. These are based on observations from previous car usage and are rough estimates.

 The estimated travelling is as follows. The frequency is the number of times it occurs in the year.

Table 4 Expected Travel Per year

Prepared by Author.

Item

Distance Travelled (in kms) (Round Trip)

Frequency every year

Travel to Work

51.86

252 days

Additional Daily Travel

2

252

Week End Travel

70

52 days

Long Road Trip

250

4 trips

Miscellaneous Travel

250

Occasional

Table 5 Cause of Travel

Cause of Travel

 Distance (in Kilometres)

Travel to work yearly

13068.72

Additional travel (yearly)

504

Weekend travel

3640

Long Road trips

1000

Miscellaneous Travel

250

Total

18462.72

Source: Prepared by Author

Car Depreciation and Resale

Cars, generally, tend to depreciate faster than other assets such as a home. The depreciation of the car was taken at 15% on a straight line basis.(BDO Australia Ltd. 2015) (BDO Australia Ltd. 2015) This depreciation will be helpful in calculating the total cost of resale.  At the end of five years, the car (both models) would have depreciated by 75%, leaving a resale value of 25%

Car Depreciation

(Diethe 2016)

The depreciation of the Car is as follows:

Table 6 Depreciation charges (All costs are in AUD)

Year

2.0 Auto 2WD

2.0 CRDi Auto AWD

Year 1

5369.61

5874.81

Year 2

5369.61

5874.81

Year 3

5369.61

5874.81

Year 4

5369.61

5874.81

Year 5

5369.61

5874.81

Total

26848.05

29374.05

 Given that the car is for private use, depreciation is being used only for the purpose of counting resale value and not included in the actual costing.

Petrol and Diesel Specifications

Costs Analyses

The major costs are mostly related to loans and fuel charges. There are repair and maintenance charges. However, the cars are under warranty period. Hence, only the regular charges are expected to apply.

Table 7  Cost of Petrol Consumption Per Year

Year

Distance travelled

Petrol Consumption (in Litres)

Cost of Petrol (in AUD)

Total Cost of Petrol Per Year

2018-2019

18462.72

1032.42888

1.422

1468.113

2019-2020

18462.73

39.816

1.638144

65.224

2020-2021

18462.74

287.56

1.887

542.666

2021-2022

18462.75

79

2.173

171.745

2022-2023

18462.76

19.75

2.504

49.462

Table 8 Cost of Diesel Consumption Per Year

Year

Distance travelled

Diesel Consumption (in Litres)

Diesel

Total Diesel Costs

2018-2019

18462.72

825.9431

1.477

1219.917964608

2019-2020

18462.73

31.8528

1.657194

52.7862690432

2020-2021

18462.74

230.048

1.859371668

427.744733480064

2021-2022

18462.75

63.2

2.086215011

131.848788726547

2022-2023

18462.76

15.8

2.340733243

36.9835852377965

Car Loan Financing

The Car is being bought with 100 per cent financing. The financing will be obtained from the dealer. At the moment, according to estimates provided by the dealer, a loan with monthly installments and 5% per  annum.  The monthly installments amount to AUD 675.53 per month for the petrol version and AUD 739.1 per month for the diesel car. 

Table 9 Payments made for the loan for petrol car

Pricing

Monthly Payments

Yearly Payments

Year 1

675.53

8106.36

Year 2

675.53

8106.36

Year 3

675.53

8106.36

Year 4

675.53

8106.36

Year 5

675.53

8106.36

Table 10 Payments made for the loan for deisel car

Pricing

Monthly Payments

Yearly Payments

Year 1

739.1

8869.2

Year 2

739.1

8869.2

Year 3

739.1

8869.2

Year 4

739.1

8869.2

Year 5

739.1

8869.2

 Life Cycle Costs Life Cycle Analyses

Life Cycle Cost analyses refers to a 360 degree costs analyses of any investment. A Life Cycle Costs analyses helps understand the total costs from cradle to grave and will help estimate the cost at various stages of the life of the car. In this case, the life of the car cannot be estimated, since it not known when the car will depreciate completely. However, for the purpose of analysis a period of five years is taken. 

Table 11 Life Cycle Costs for Petrol car  (All costs are in AUD)

Pricing

Monthly Payments

Yearly Payments

Repair and Maintenance

Total Cost of Petrol Consumption

Total

Year 1

675.53

8106.36

326

2074.065039

11154.217964608

Year 2

675.53

8106.36

326

2389.324219

9987.0862690432

Year 3

675.53

8106.36

326

2752.502992

10362.0447334801

Year 4

675.53

8106.36

326

3170.885164

10066.1487887265

Year 5

675.53

8106.36

326

3652.861687

9971.2835852378

Table 12  Life Cycles Costs for Diesel car  (All Payments are in AUD)

Pricing

Monthly Payments

Yearly Payments

Repair and Maintenance

Total Cost of Petrol Consumption

Total

Year 1

739.1

8869.2

326

2074.065039

12008.36503936

Year 2

739.1

8869.2

326

2389.324219

12323.6242194765

Year 3

739.1

8869.2

326

2752.502992

12686.802991679

Year 4

739.1

8869.2

326

3170.885164

13105.1851638643

Year 5

739.1

8869.2

326

3652.861687

13587.1616872742

Time Discounting                                                                                                                   

Time Discounting refers to the process of accounting for time value of money. An investment made today will generate returns in the future. Similarly, the investment made in the card today, will generate returns tomorrow. Investment in the car make sense only when the investment made today will make sense only if the benefits that could have been derived from the investment today is less than the benefits derived in the future.(Frederick 1999)

 Net Present Value

It is difficult to take the Net Present Value of an investment whose productive value cannot be quantified. The new car will indeed have some productive value since it will commute every day much easier and add value to the leisure trips. However, this value cannot be quantified in monetary terms. Hence, the value for the possible benefits that could be accrued from holding the investment in hand are to be calculated. The bank interest rate has been used as the value of holding the cash in hand, instead of paying towards the fuel, consumption etc. (Frederick 1999)

Fuel Consumption and Performance

Net Present Value gives an idea about the. Present Value of an Investment for a series of cash flows that will be accrued in the future.(Frederick 1999) It takes into consideration the value of investment discounted at the desired Discount Rate (here taken as 2.25%). Discount Rate is that Rate of Return that is the assigned value for forgoing present consumption in favour of future returns. Here, the assigned value was taken at 2.25%Source: Please see Appendix (Excel sheet attached for Calculations)

The Net Present Value of the Petrol version i,e 2.0 Auto 2WD is higher. Hence, the investment in Petrol version of the car is better.

This calculation was simply a comparison between two cars, and not a choice between having a car and not having a car. Hence, the Net Present Value is not being used to make a decision on whether to make an investment or not but on which investment to make.

Conclusion

An investment in the petrol car is more valuable from various points if view : These include health concerns, concerns regarding costs, health and repair and maintenance. Diesel cars do not only have high upfront costs but also greater fuel costs. The cost of the diesel car is higher because the diesel car is fuel intensive and it burns considerably less fuel. However, the fuel efficiency is not enough to justify higher costs. A diesel car would be justified for someone who has more commute, outside of the city, in the rougher terrain that requires more power out of the vehicle. The additional spending in diesel cars is also, justified in situations where the gas pumps are far too stretched and there is need to have a car that requires frequent refueling. However, these are not the needs of the family within the city. Hence, based on the Net Present value of the investment, a petrol car is more viable.

Australian Institute of Petroleum. Retail Petrol Price. May 2018. 

Australian Petroleum Institute. Pump Prices. May 2018.

BDO Australia Ltd. . "ACCELERATED DEPRECIATION OF MOTOR VEHICLES.

Cadogan, John. Diesel Vs Petrol Engine: Which one is right for you? | Auto Expert John Cadogan | Australia. April 23, 2017. 

Diethe, John. What is the Average Car Depreciation Rate? May 23, 2016. 

Finder.com. Savings accounts and term deposit interest rate updates: April 2018. April 2018. 

Frederick, Shane. Discounting, Time Preference, and Identity. USA: Department of Social and Decision Sciences, Carnegie Mellon University, 1999.

Hyundai Motor Company, Australia Pty Limited. Models. 2018. 

McCowen, David. Can the Tucson deliver Hyundai's claimed fuel use? March 16, 2017. 

Numbeo. Gas Prices in Perth, Australia. 2018.

Seigel, Joel G, and JaE K Shim. Accounting Handbook. New York: Barron's education Series, 2000.

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To export a reference to this article please select a referencing stye below:

My Assignment Help. (2020). Life Cycle Costing Analysis Of Hyundai Tucson Active SUV - Petrol Vs Diesel. Retrieved from https://myassignmenthelp.com/free-samples/prjm6001-project-cost-management/model-related-specifications.html.

"Life Cycle Costing Analysis Of Hyundai Tucson Active SUV - Petrol Vs Diesel." My Assignment Help, 2020, https://myassignmenthelp.com/free-samples/prjm6001-project-cost-management/model-related-specifications.html.

My Assignment Help (2020) Life Cycle Costing Analysis Of Hyundai Tucson Active SUV - Petrol Vs Diesel [Online]. Available from: https://myassignmenthelp.com/free-samples/prjm6001-project-cost-management/model-related-specifications.html
[Accessed 20 May 2024].

My Assignment Help. 'Life Cycle Costing Analysis Of Hyundai Tucson Active SUV - Petrol Vs Diesel' (My Assignment Help, 2020) <https://myassignmenthelp.com/free-samples/prjm6001-project-cost-management/model-related-specifications.html> accessed 20 May 2024.

My Assignment Help. Life Cycle Costing Analysis Of Hyundai Tucson Active SUV - Petrol Vs Diesel [Internet]. My Assignment Help. 2020 [cited 20 May 2024]. Available from: https://myassignmenthelp.com/free-samples/prjm6001-project-cost-management/model-related-specifications.html.

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