Answers: Investing in X100 Server

According to our analysis, So , c) is a betterthe optimal choice whichchoice, which confirmed our aggressive machine buying strategy since Day 135. And on Day 149, and Day 170, we immediately bought machine for station 2 and 1 again when the stationsit becomes bottle neck or when lead time is more than 0.28 which caused revenue decreased to $1,200.

The third scenario was ignoring the option to invest in the second-generation project and selling the equipment in year 2. We evaluated this option as a put option. First, we calculated the probabilities for going up and down based on the assumption of a risk neutral word. As a result, the probability of going upward is calculated as 0.3375 and downward probability is 0.6625. In order to determine the present value of all the sequence cash flow at the end of year 2, we calculated the upside change rate and downside change rate as 64.87% and -39.35%, respectfully. The next step is to analyze the option value by using the “Binomial Tree” method. In order to determine the present value of all the subsequence cash flow at the end of year 2, we calculated the cash flow at each node on the tree, until 2006. We discounted all the cash flow at the risk free rate at 10%. The End of Year NPV of all the subsequence cash flow at Year 2 is calculated as $7,571,752, and the selling price of the equipment at end of 2 is $4,000,000, which is the salvage value. We found the NPV of selling the machine at end of Year 2 to be -$2,951,861 as of Year 0, which is negative. The APV of the project after adding the option turned out to be -$6,321,932. This negative APV suggest that the

On average, subscribers purchased 19.9 CDs annually, mostly through Sonik’s website. Annual subscriber retention rate was 90 percent. Sonik accumulated CDs from various suppliers and fulfilled its own orders. Annual fixed costs of fulfillment were $400,000; shipments averaged 3.7 CDs per package. Annual marketing expenses were $230,000; Sonik spent 90 percent on acquiring new subscribers and 5 percent on subscriber retention. Sonik’s cost of capital was 12 percent. It was considering three growth options: a. Continue the Niche Strategy: Sonik believed it could acquire 20,000-30,000 new customers per annum for the next several years without major new investment. Sonik also believed that spending $0.5 million per annum would increase customer retention to 95 percent. b. Mass-Market Strategy: Abandon the subscription model, add many other music genres, and build a mass-market brand.

We recommend making the $2M investment to reduce our process loss from 10% to 2%, which

a) In the first set of calculations, the staff used a discount rate of 20%, a five-year time horizon, and ignored taxes and terminal value. What is the relative attractiveness of these three alternatives?

4. Now consider a second alternative for accumulating funds to buy the new billing system. In lieu of a lump sum investment, assume that five annual payments of $32,000 are made at the end of each year.

Calculate how much each system will cost per year and determine which of the quotes is most cost-effective.

Smith’s Information Services is in the process of implementing a corporate overhead reduction program. This is due in part to the increasing costs of operating and maintaining an in-house data center, as well as flattened sales and reduced profits. For these reasons Smith’s Information Services is looking to outsource the company’s data center to an outside vendor. The increasing overhead costs include personnel costs to operate and maintain the data center’s servers, data center cooling costs, and electrical utility costs required to run the data center. Reducing these overhead costs, by outsourcing the data center, will help Smith’s Information

Assumptions: (1) without considering support program (2) buy a new machine, (3) spend full marketing budget

The cost of implementation of the options: It deals with the technicians and the reduction in time of implementation. This leads to better customer service and increases efficiency of the technicians. Also considering a customer base reduction of 5% (Exhibit 2), $1 million dollars will be a prudent investment.

You work for a small, local telecommunications company. In five years, the company plans to undertake a major upgrade to its servers and other IT infrastructure.

In order to determine if leasing the hardware and software for 24 months would be beneficial, we first calculated the NPV and EAC for two different scenarios.  The first scenario consists of computing the NPV and EAC of

2. Based on the information in the case, which provider would you select (and why)? Argue in favor of and against each vendor before arriving at the final decision?

a. Investigate the original calculation of Setup Cost (denoted by “S” in the case), is there

a. I recommend that we invest $500,000 and let JV run independentlyas it was. Reason being is because 1. It is a minimul investment of only $500,000 vs. an investment of $8.5 million to create a gold standard of manufacturing facility and have the clients order volume not meet projections. In other words “why fix what’s not broken”.