EBK OPERATIONS MGMT.
12th Edition
ISBN: 9780134163567
Author: HEIZER
Publisher: PEARSON
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Question
Chapter 7.S, Problem 37P
Summary Introduction
To determine: The machine that should be recommended by TS person using the present value method.
Introduction:
Present value (PV):
It is the value that is in present form of money in contrast to some future amount. This is achieved when it is invested in compound interest.
The NPV is the measurement of profit that is calculated by subtracting the present values of
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Tim Smunt has been asked to evaluate two machines. After some investigation, he determines that they have the costs shown in the following table:
Machine A
Machine B
Original Cost
$15,000
$24,000
Labor per year
$2,400
$4,800
Maintenance per year
$4,300
$1,000
Salvage value
$2,400
$7,200
He is told to assume that:
1. The life of each machine is
3
years.
2. The company thinks it knows how to make
14%
on investments no more risky than this one.
3. Labor and maintenance are paid at the end of the year.
The NPV for Machine
A=$nothing
(round your response to the nearest whole number and include a minus sign if necessary).
Janelle Heinke, the owners of Ha'Peppas, is consid-ering a new oven in which to bake the firm's signature dish, vegetarian pizza. Oven type A can handle 20 pizzas an hour. The fixed costs associated with oven A are $20,000 and the vari-able costs are $2.00 per pizza. Oven B is larger and can handle 40 pizzas an hour. The fixed costs associated with oven B are $30,000 and the variable costs are $1.25 per pizza. The pizzas sell for $14 each.
a) What is the break-even point for each oven?
b) If the owner expects to sell 9,000 pizzas, which oven should she purchase?
c)If the owner expects to sell 12,000 pizzas, which oven should she purchase?
d) At what volume should Janelle switch ovens?
A manager must decide which type of equipment to buy, Type A or Type B. Type A equipment cost $15,000 each, and Type B cost $11,000 each. The equipment can be operated 8 hours a day, 250 days a year. Either machine can be used to perfom two types of chemical analysis, C1 and C2. Annual service requirements and processing times are shown in the following table. Which type of equipment should be purchased, and how many of that type wil be need? The goal is to minimize total purchase cost.
processing time per
analysis (hr)
Analysis type Annual volume A B
C1 1200 1 2
C2 900 3…
Chapter 7 Solutions
EBK OPERATIONS MGMT.
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