Mars Incorporated is interested in going to market with a new fuel savings device that attaches to electrically powered industrial vehicles. The device, code named "Python," promises to save up to 15% of the electrical power required to operate the average electric forklift. Mars expects that modest demand expected during the introductory year will be followed by a steady increase in demand in subsequent years. The extent of this increase in demand will be based on customer's expectations regarding the future cost of electricity, which is shown in Table 1. Mars expects to sell the device for $300 each, and does not expect to be able to raise its price over the foreseeable future. Mars is faced with two alternatives: ≻Alternative 1: Make the device
Mars Incorporated is interested in going to market with a new fuel savings device that attaches to electrically powered industrial vehicles. The device, code named "Python," promises to save up to 15% of the electrical power required to operate the average electric forklift. Mars expects that modest demand expected during the introductory year will be followed by a steady increase in demand in subsequent years. The extent of this increase in demand will be based on customer's expectations regarding the future cost of electricity, which is shown in Table 1. Mars expects to sell the device for $300 each, and does not expect to be able to raise its price over the foreseeable future. Mars is faced with two alternatives: ≻Alternative 1: Make the device
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter12: Queueing Models
Section: Chapter Questions
Problem 59P
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Mars Incorporated is interested in going to market with a new fuel savings device that attaches to electrically powered industrial vehicles. The device, code named "Python," promises to save up to 15% of the electrical power required to operate the average electric forklift. Mars expects that modest demand expected during the introductory year will be followed by a steady increase in demand in subsequent years. The extent of this increase in demand will be based on customer's expectations regarding the future cost of electricity, which is shown in Table 1. Mars expects to sell the device for $300 each, and does not expect to be able to raise its price over the foreseeable future.
Mars is faced with two alternatives:
≻Alternative 1: Make the device themselves, which requires an initial outlay of
$450,000 in plant and equipment and a variable cost of $175 per unit.
≻Alternative 2: Outsource the production, which requires no initial investment, but incurs a per unit cost of $190.
The NPV for alternative 1 is $2827406
Part 5
Determine cash flows for alternative 2 and fill in the table below. (Enter your responses as whole numbers. Be sure to include a minus sign for cash outflows. )
|
Year
|
Demand in devices
|
(outflow)
|
|
0
|
|
$enter your response here
|
|
1
|
1,000
|
$enter your response here
|
|
2
|
4,000
|
$enter your response here
|
|
3
|
8,000
|
$enter your response here
|
|
4
|
13,000
|
$enter your response here
|
|
5
|
16,000
|
$enter your response here
|
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