3. A supermarket chain buys loaves of bread from its supplier at $0.50 per loaf. The chain is considering two options to bake its own bread. Machine A Machine B Capital investment Useful life (years) Annual fixed cost $8,000 7 $16,000 $2,000 $0.26 $4,000 S0.16 Variable cost per loaf Neither machine has a market value at the end of seven years, and MARR is 12% per year. What is the minimum number of loaves that must be sold per year to justify installing Machine A instead of buying the loaves from the supplier? b. What is the minimum number of loaves that must be sold per year to justify installing а. Machine B instead of buying the loaves from the supplier? If the demand for bread at this supermarket is 35,000 loaves per year, what strategy should be adopted for acquiring bread? Both Machine A and Machine B are capable of meeting annual demand. The strategies are as follows: i) Continue buying from the supplier. (ii) Install Machine A. (iii) Install Machine B. (iv) Install both Machine A and Machine B.

3. A supermarket chain buys loaves of bread from its supplier at $0.50 per loaf. The chain is considering two options to bake its own bread. Machine A Machine B Capital investment Useful life (years) Annual fixed cost $8,000 7 $16,000 $2,000 $0.26 $4,000 S0.16 Variable cost per loaf Neither machine has a market value at the end of seven years, and MARR is 12% per year. What is the minimum number of loaves that must be sold per year to justify installing Machine A instead of buying the loaves from the supplier? b. What is the minimum number of loaves that must be sold per year to justify installing а. Machine B instead of buying the loaves from the supplier? If the demand for bread at this supermarket is 35,000 loaves per year, what strategy should be adopted for acquiring bread? Both Machine A and Machine B are capable of meeting annual demand. The strategies are as follows: i) Continue buying from the supplier. (ii) Install Machine A. (iii) Install Machine B. (iv) Install both Machine A and Machine B.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter5: Investment Decisions: Look Ahead And Reason Back

Section: Chapter Questions

Problem 4MC

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