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- A manager is trying to decide whether to buy one machine or two. If only one machine is purchased and demand proves to be excessive, the second machine can be purchased later. Some sales would be lost, however, because the lead time for delivery of this type of machine is 6 months. In addition, the cost per machine will be lower if both machines are purchased at the same time. The probability of low demand is estimated to be 0.30 and that of high demand to be 0.70. The after-tax NPV of the benefits from purchasing two machines together is $90,000 if demand is low and $170,000 if demand is high. If one machine is purchased and demand is low, the NPV is $120,000. If demand is high, the manager has three options: (1) doing nothing, which has an NPV of $120,000; (2) subcontracting, with an NPV of $140,000; and (3) buying the second machine, with an NPV of $130,000. a. Draw a decision tree for this problem. b. What is the best decision and what is its expected payoff?A manager is trying to decide whether to buy one machine or two. If only one machine is purchased and demand proves to be excessive, the second machine can be purchased later. Some sales would be lost, however, because the lead time for delivery of this type of machine is six months. In addition, the cost per machine will be lower if both machines are purchased at the same time. The probability of low demand is estimated to be 0.20 and that of high demand to be 0.80. The after-tax NPV of the benefits from purchasing two machines together is $70,000 if demand is low and $170,000 if demand is high. If one machine is purchased and demand is low, the NPV is $100,000. If demand is high, the manager has three options: (1) doing nothing, which has an NPV of $100,000; (2) subcontracting, with an NPV of $140,000; and (3) buying the second machine, with an NPV of $120,000. What is the best decision and what is its expected payoff? Best decision is to buy nothing…A business that will open a gift shop in Los Angeles is considering making and selling love-themed magnets. It is thought that it will not be possible to order new magnets during the fair period, and magnets that are not sold during the fair period will not be sold later. A box of magnets costs the business $100 and generates $460 from its sale. The table includes predictions about demand probabilities.a-) What is the overstocking cost of the business in dollars/box?
- Two neighbouring farmers can use either high or low quantities of fertilizer. If they both use low quantities, then they each earn $1,200,000. If they both use high quantities, then they each earn $900,000. If one of the farmers uses low quantities and the other uses high quantities, then they respectively earn $500,000 and $1,000,000. What fine on high pesticide use causes both farmers to adopt a low quantity strategy? What other strategies can you suggest to cut down the amount of pesticide usage?Karens Quilts is considering the purchase of a new Long-arm Quilt Machine that will cost $17,500 and will increase her fixed costs by $119. What would happen if she purchased the new quilt machine to realize the variable cost savings of $5.00 per quilt, and what would happen if she raised her price by just $5.00? She feels confident that such a small price increase will not decrease the sales in units that will help her offset the increase in fixed costs. Given the following current prices how would the break-even in units and dollars change? Complete the monthly contribution margin income statement for each of these cases.Kylies Cookies is considering the purchase of a larger oven that will cost $2,200 and will increase her fixed costs by $59. What would happen if she purchased the new oven to realize the variable cost savings of $0.10 per cookie, and what would happen if she raised her price by just $0.20? She feels confident that such a small price increase will decrease the sales by only 25 units and may help her offset the increase in fixed costs. Given the following current prices how would the break-even in units and dollars change if she doesnt increase the selling price and if she does increase the selling price? Complete the monthly contribution margin income statement for each of these cases.
- CT Corp. is considering a project that has an up-front cost at t = 0 of P24,000. The project’s subsequent cash flows are critically dependent on whether a competitor’s product is approved by the Food and Drug Administration. If the FDA rejects the competitive product, Mano's product will have high sales and cash flows, but if the competitive product is approved, that will negatively impact Mano. There is a 75% chance that the competitive product will be rejected, in which case Mano's expected cash flows will be P8,000 at the end of each of the next seven years (t = 1 to 7). There is a 25% chance that the competitor’s product will be approved, in which case the expected cash flows will be only P600 at the end of each of the next seven years (t = 1 to 7). Mano will know for sure one year from today whether the competitor’s product has been approved. CT Corp. is considering whether to make the investment today or to wait a year to find out about the FDA’s decision. If it waits a year,…“In my opinion, we ought to stop making our own drums and accept that outside supplier’s offer,” said Wim Niewindt, managing director of Antilles Refining, N.V., of Aruba. “At a price of $20 per drum, we would be paying $5.45 less than it costs us to manufacture the drums in our own plant. Since we use 80,000 drums a year, that would be an annual cost savings of $436,000.” Antilles Refining’s current cost to manufacture one drum is given below (based on 80,000 drums per year): Direct materials $ 12.00 Direct labor 6.50 Variable overhead 1.50 Fixed overhead ($2.90 general company overhead, $1.80 depreciation, and $0.75 supervision) 5.45 Total cost per drum $ 25.45 A decision about whether to make or buy the drums is especially important at this time because the equipment being used to make the drums is completely worn out and must be replaced. The choices facing the company are: Alternative 1: Rent new equipment and continue to make the drums. The equipment would be…Can someone help me with part B of this problem?: Verasource Microprocessor Corporation sells 200 computer chips a month for $1,500 each. variable costs are $1,500,000. Fixed costs are $500,000. there's a defect rate of 8%. What is the hidden cost to the company of making this rate of defectives instead of 2,000 good chips each month? Suppose a six sigma effort can reduce the defects to a six sigma level. what is the impact on profitability?
- Make or Buy Decisions “In my opinion, we ought to stop making our own drums and accept that outside supplier’s offer,” said Wim Niewindt, managing director of Antilles Refining, N.V., of Aruba. “At a price of $18 per drum, we would be paying $5 less than it costs us to manufacture the drums in our own plant. Since we use 60,000 drums a year, that would be an annual cost savings of $300,000.” Antilles Refining’s current cost to manufacture one drum is given below (based on 60,000 drums per year): A decision about whether to make or buy the drums is especially important at this time because the equipment being used to make the drums is completely worn out and must be replaced. The choices facing the company are: Alternative 1: Rent new equipment and continue to make the drums. The equipment would be rented for $135,000 per year. Alternative 2: Purchase the drums from an outside supplier at $18 per drum. The new equipment would be more efficient than the equipment that Antilles Refining…Darren Mack owns the Gas n’ Go convenience store and gas station. After hearing a marketing lecture, he realizes that it might be possible to draw more customers to his high-margin convenience store by selling his gas at a lower price. However, the Gas n’ Go is unable to qualify for volume discounts on its gas purchases, and therefore, cannot sell gas for profit if the price is lowered. Each new pump will cost $95,000 to install but will increase customer traffic in the store by 12,000 customers per year. Also, because the Gas n’ Go would be selling its gasoline at no profit, Darren plans on increasing the profit margin on convenience store items incrementally over the next 5 years. Assume a discount rate of 7%. The projected convenience store sales per customer and the projected profit margin for the next 5 years are as follows: Year Projected Convenience Store Sales Per Customer Projected Profit Margin 1 $5.00 20% 2 $6.50 25% 3 $8.00 30% 4…If the farmer uses pesticides he expects a crop of 60,000 bushels; if he does not use pesticides he expects a crop of 50,000 bushels. The cost of pesticides is $30,000 and the other costs associated with planting and harvesting the crop total $450,000. The price of corn at harvest time will either be $9.00 with probability of 0.50 or it will be $11.00 with probability 0.50, so if the farmer decides to sell the crop at harvest, the expected price per bushel that he will receive is $10.00. If the farmer uses pesticide and decides to sell the crop at harvest, what is his expected profit? a. $120,000.00 b. $150,000.00 c. $180,000.00 d. $20,000.00