9. Which investment is the most engaging, if the cost of money is 9%? a. Investment C b. Investment A c. Investment B d. Any of the investment e. None of the Above As an operations manager of OPQ Furniture, you must make a decision about adding a line of rustic furniture for physical distribution. In discussing the possibilities with your sales manager, you decide that there will be definitely be a market and that your firm should enter the market. However, because of rustic furniture has a different finish than your standard offering, you decide you need another process line. There is no doubt in your mind about the decision, and you are sure that you should have a second process. But you do question how large to make it. A large process line is going to cost $400,000; a small process line will cost $300,000. The question therefore is the demand for rustic furniture. After extensive discussion, you determine that the best estimate you can make is that there is a two out of three chance of profit from sales as large as $600,000 and a one out of three chance as low as $300,000. With a large process line, you can handle the $600,000. However, with a small process line you could not and would be forced to expand at a cost of $150,000, after which time your profit from sales would be $500,000 rather than the $600,000 because of the lost time in expanding the process. If you do not expand the small process, your profit from sales would hold to
9. Which investment is the most engaging, if the cost of money is 9%?
a. Investment C
b. Investment A
c. Investment B
d. Any of the investment
e. None of the Above
As an operations manager of OPQ Furniture, you must make a decision about adding a line of
rustic furniture for physical distribution. In discussing the possibilities with your sales manager, you decide
that there will be definitely be a market and that your firm should enter the market. However, because of
rustic furniture has a different finish than your standard offering, you decide you need another process
line. There is no doubt in your mind about the decision, and you are sure that you should have a second
process. But you do question how large to make it. A large process line is going to cost $400,000; a small
process line will cost $300,000. The question therefore is the demand for rustic furniture. After extensive
discussion, you determine that the best estimate you can make is that there is a two out of three chance
of profit from sales as large as $600,000 and a one out of three chance as low as $300,000.
With a large process line, you can handle the $600,000. However, with a small process line you
could not and would be forced to expand at a cost of $150,000, after which time your profit from sales
would be $500,000 rather than the $600,000 because of the lost time in expanding the process. If you
do not expand the small process, your profit from sales would hold to $400,000. If you build a small
process and the demand is low, you can handle all of the demand.
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