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Its a case study for a company decide to choose 2 case electric car or a hybrid car
Typology: Schemes and Mind Maps
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EcoDelivery Ltd., a logistics company founded in January 2020, offers last-mile delivery services in five major cities, primarily serving e-commerce businesses and small retailers. To start, the company purchased 50 diesel vans, each making about 200 deliveries weekly. However, the aging fleet, now averaging five years, faces challenges related to rising operational costs and compliance with new environmental regulations. Fuel costs have risen by 12% over the past two years, with each van consuming around $4,300 in diesel annually. Maintenance expenses are also climbing, averaging $3,000 per vehicle per year. Stricter urban emissions regulations affecting diesel vehicles and increasing client demand for sustainable delivery options compound these issues. To address these challenges, EcoDelivery's management has proposed two solutions to modernize its fleet. The first option is replacing the fleet with electric vehicles (EVs), which eliminates fossil fuel reliance, reduces emissions, and lowers fuel and maintenance costs. However, EVs require significant upfront investment for 50 new vehicles and charging infrastructure, along with potential operational disruptions, such as driver training and charging delays. The second option is retrofitting the existing fleet with hybrid engines, a more economical solution that reduces fuel consumption by 50% and ensures compliance with emission standards. Retrofitting offers a shorter, phased transition but provides less environmental benefit and may result in lower performance and reliability compared to new EVs.
This alternative involves replacing the entire fleet with 50 new electric vans priced at $53,000 to balance the initial investment. In addition to the vehicle costs, EcoDelivery would incur an 8% sales tax and an annual insurance cost of $1,200 per vehicle. Upgrading to electric vehicles requires the installation of 8 fast chargers, each costing $25,000, with an 8% tax applied. Further investments include $100,000 for electrical upgrades (also taxed at 8%), $50,000 for specialized tools, $25,000 for staff training, and $10, for permits to adapt the maintenance facility. Operating costs for EVs are expected to be significantly lower than the current fleet, with electricity costs of $1,100 per vehicle per year and maintenance costs of $ per vehicle per year.
At a basic cost of $18,000 per vehicle, subject to an 8% sales tax, the second option involves replacing the fleet's 50 vehicles with hybrid engines. As a function of vehicle age, the variable replacement cost is calculated as follow: 100𝑥^2 +400𝑥+2,000, where 𝑥 represents the vehicle's age in years. Additional costs include $250,000 for specialized tools needed for the retrofitting process, $10,000 for a battery monitoring system, and $20,000 for staff training. Operating costs are reduced compared to the current fleet, with fuel consumption dropping from $4,300 to $2,150 annually per vehicle (a 50% reduction), and maintenance costs estimated at $2,200 annually. The retrofitted fleet would also require an annual insurance cost of $1,200 per vehicle, like the EV option.
EcoDelivery Ltd. has set an 8-year project lifespan, consistent with the operational life of commercial delivery vehicles and adaptable to technological changes and emission regulations. Estimated total salvage
values are $400,000 for EVs and $150,000 for hybrids, covering the entire fleet. A minimum return of 8% has been set, reflecting market conditions, depreciation, and operational costs. The leadership must decide between EVs, a sustainable long-term solution requiring significant upfront investment and charging infrastructure, or retrofitting, a cost-effective approach that reduces emissions but depends on outdated diesel components. The decision must balance financial constraints, operational needs, and growing client demand for eco-friendly solutions, aligning with EcoDelivery’s sustainability goals. Table 1. A list of team positions and responsibilities Position Assigned Tasks Team Leader (1 student) Coordinate the group, monitor progress and review the final decision, Identify the key practical challenges for both options. Finance Team (3–4 students) Focus on calculations for both EV and hybrid options. Presentation Team (2– students) Create and prepare slides, construct visuals (e.g., a cost comparison chart), summarize findings and key points into bullet points for the presentation.
The team will develop a comprehensive report for EcoDelivery Ltd. This report will address the company’s background, needs, and challenges, guiding leadership in making informed decisions. The financial analysis will focus on two key metrics chosen from the following: Net Present Value (NPV), Internal Rate of Return (IRR), Payback Period, Annual Worth (AW), and Benefit-Cost Ratio (BCR). In addition, the report structure includes: Title Page: Include the report title, course details, student names, and submission date. Executive Summary: Provide a concise summary of the analysis, key findings, and recommendations. Assumptions: Clearly list assumptions regarding cost estimates, discount rates, project lifespan, and salvage values. Methodology: Explain the chosen financial metrics, such as NPV and IRR, and justify their relevance to the analysis. That is, describe why you selected these measures. Financial Analysis: Present detailed calculations for each financial metric, organized systematically. Discussion: Interpret the results, comparing the financial viability of each option. Conclusion and Recommendations: Summarize the findings and give a clear recommendation based on them. Additionally, the team will deliver a 15-minute oral presentation followed by a 5-minute Q&A session. The presentation should begin with an introduction addressing EcoDelivery’s challenges and the necessity of fleet modernization, followed by the detailed analysis and recommendations. Table 2. Estimated Timeline for 1-Hour Completion Activity Time (minutes) Assign Roles & Plan 5 Perform Calculations 25 Identify Practical Issues 10 Prepare Slides 10 Final Review & Rehearsal 10 Total 60