Engineering Economy (16th Edition) - Standalone book
16th Edition
ISBN: 9780133439274
Author: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher: PEARSON
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Chapter 13, Problem 12P
To determine
Formulation of capital allocation problem as a linear integer programming model.
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Eaton Medical Services is evaluating 10 independent indivisible projects, all with positive NPV. The company's capital budgeting for the year is limited to a maximum of $5,000,000.
(A) Use solver to find the optimum combination of projects the company should accept, under the assumption that A and B are mutually exclusive and one of them has to be selected.
(B) Ignore the constraint from previous part, assume that project “I” has to be accepted. Use solver to find optimum combination of projects the company should accept now.
Please show all steps to compute in excel using solver to get to the right answers. Thank you in advance, will upvote!
Project
Cost
NPV
A
1,061,191
122,737
B
561,758
58,102
C
1,647,849
280,660
D
1,026,020
89,365
E
191,870
17,568
F
1,333,625
76,960
G
3,102,642
123,240
H
275,568
79,367
I
2,044,070
60,506
J
1,017,567
56,690
LEARNING EXERCISE 2
1. Two alternative designs are under consideration for a tapered fastening pin. The fastening pins are
sold for $0.70 each. Either design will serve equally well and will involve the same material and
manufacturing cost except for the lathe and drill operations. Design A will require 12 hours of lathe time
and 5 hours of drill time per 1,000 units. Design B will require 7 hours of lathe time and 8 hours of drill
time per 1,000 units. The variable operating cost of the lathe, including labor, is $18.60 per hour. The
variable operating cost of the drill, including labor, is $16.90 per hour. Finally, there is a sunk cost of
$5,000 for Design A and $9,000 for Design B due to obsolete tooling.
a. Which design should be adopted if 125,000 units are sold each year?2w gawen ni yilaunsm
b. What is the annual saving over the other design? dipet jeen
e1s enoiluloe uoy eue elsM
evip elshetem pnimsel ertt of 1ele vem uoY ugjuo ioubivibni ns al airlT
Kipling Equipment Inc. must decide to produce either a face mask or a face shield to
X alleviate the spread of a quickly evolving coronavirus. The face mask is disposable and
developing it could potentially lead to a profit of $300,000 if competition is high or a
profit of $470,000 if competition is low. The face shield, on the other hand, is reusable
and has the potential of generating a fixed profit of $430,000 irrespective of high or
low competition. The probability of high competition is 52% while that of low
competition is 48%.
Co
Part A
Construct a decision tree or a payoff table for the decision problem and use it to
answer the following questions.
a) What is the expected monetary value of the optimal decision?
$
b) Based on expected monetary value, what should the Kipling do?
$ Produce face shield
c) What is the upper bound on the amount Kipling should pay for additional
information?
$
Part B
Chapter 13 Solutions
Engineering Economy (16th Edition) - Standalone book
Knowledge Booster
Similar questions
- Investors put up $520,000 to construct a building and purchase all equipment for a new restaurant. The investors expect to earn a minimum return of 10 per cent on their investment. The restaurant is open 52 weeks per year and serves 900 meals per week. The fixed costs are spread over the 52 weeks (i.e. prorated weekly). Included in the fixed costs is the 10% return to the investors and $1,000 per week in other fixed costs. Variable costs include $1,000 in weekly wages and $600 per week for materials, electricity, etc. The restaurant charges $5 on average per meal. If the restaurant were to shut down, what would losses per week?arrow_forwardPNG’s managers estimate that a 50% increase in price would cause an 80% reduction in the quantity of product sold. Total fixed costs for the product are $5000 and total variable costs are $4000, based on production of 400 units. The following values may be useful. 1n (0.2) = –1.609 1n (1.5) = 0.405 1n (0.5) = –0.693 1n (4000) = 8.294 1n (0.8) = –0.223 1n (5000) = 8.517 What is PNG’s price elasticity of demand? –0.252 +0.322 –3.973 +3.108arrow_forwardWhich of the following would be an advantage of using a Project Management software application (select all that apply): Learning curve Accuracy Speed False sense of security Ability to handle more complex projects What-if analysisarrow_forward
- Andy Mendoza makes handcrafted dolls, which he sells at craft fairs. He is considering mass-producing the dolls to sell in stores. He estimates that the initial investment for plant and equipment will be $15,000, while labor, materials, packaging, and shipping will be about $4 per doll. He has determined that monthly sales volume is related to price, according to the following equation: v = 1000 - 20p + (1000/p) Find the optimal price, the optimal volume, and the maximal profit per month with a relationship between volume and price.arrow_forwardExamine the sensitivity of the project to changes in the manufacturing throughput, discount rate and gross marginarrow_forwardA company is analyzing a make-versus-purchase situation for a component used in several products, and the engineering department has developed these data: Option A: Option B: Purchase 10,000 items per year at a fixed price of $8.88 per item. The cost of placing the order is negligible according to the present cost accounting procedure. Manufacture 10,000 items per year, using available capacity in the factory. Cost estimates are direct materials = $4.96 per item and direct labor = $1.31 per item. Manufacturing overhead is allocated at 200% of direct labor (= $2.62 per item). Based on these data, should the item be purchased or manufactured? The total cost of Option A is $ (Round to the nearest dollar.) The total cost of Option B is $ . (Round to the nearest dollar.) Should the item be purchased or manufactured? Choose the correct answer below. O The item should be manufactured. O The item should be purchased.arrow_forward
- A state is planning to construct a stretch of highway extending to 60 Kilometer. The state signed a contract based on the BOT option (Build, Operate, and Transfer) with a construction company. The construction company will finish the project in two years (30 kilometers per year), after which it will operate the highway for 25 years. The company generates revenues by collecting a flat fees from the cars using the highway. The following information is available: Cost/Kilometer: 1,000,000 S Number of cars using the highway: 500,000 car for the first year of usage, then increase by 5% a year. - Annual operation cost: 100,000 $ for the first year of usage, then increase by 10,000 $ every year. The company's MARR is 8% per year. Calculate the value of the fee charged/car so that the Net Present worth of the project is 25,000,000 S.arrow_forwardConsider the following investment opportunity: Capital Investment (End of Year 0) Expenses (per year) Revenues (geometric series) $450,000 $25,000 $60,000 in the first year, increasing 5% per year following Market value (End of Year 20) Study Period (years) MARR (per year) $90,000 20 years 10% 10% Interest Tablearrow_forwardMcBurger, Inc., wants to redesign its kitchens to improve productivity and quality. Three designs, called designs K1, K2, and K3, are under consideration. No matter which design is used, daily production of sandwiches at a typical McBurger restaurant is for 500 sandwiches. A sandwich costs $1.30 to produce. Non-defective sandwiches sell, on the average, for $2.50 per sandwich. Defective sandwiches cannot be sold and are scrapped. The goal is to choose a design that maximizes the expected profit at a typical restaurant over a 300-day period. Designs K1, K2, and K3 cost $80,000, $100,000, and $140,000, respectively. Under design K1, there is a .80 chance that 90 out of each 100 sandwiches are non-defective and a .20 chance that 70 out of each 100 sandwiches are non-defective. Under design K2, there is a .85 chance that 90 out of each 100 sandwiches are non-defective and a .15 chance that 75 out of each 100 sandwiches are non-defective. Under design K3, there is a .90 chance that 95 out…arrow_forward
- Develop all (a) acceptable, and (b) nonacceptable mutually exclusive bundles for four independent projects if the investment limit is $350 and the following project selection restriction applies: Project 2 can be selected only if project 3 is selected. Initial Project Investment, $ 1 250 2 150 3 75 4 235arrow_forwardKipling Equipment Inc. must decide to produce either a face mask or a face shield to alleviate the spread of a quickly evolving coronavirus. The face mask is disposable and developing it could potentially lead to a profit of $230,000 if competition is high or a profit of $515,000 if competition is low. The face shield, on the other hand, is reusable and has the potential of generating a fixed profit of $438,000 irrespective of high or low competition. The probability of high competition is 43% while that of low competition is 57%. Part A a) What is the expected monetary value of the optimal decision? $ b) Based on expected monetary value, what should the Kipling do? Select an answer c) What is the upper bound on the amount Kipling should pay for additional information? $arrow_forwardConsider the two mutually exclusive projects described in the table below. (Note: Each part of the question requires a written answer.) a) Assuming 9% minimum attractive rate of return (MARR), should either of the two projects be accepted? Why? b) Assuming 16% MARR, should either of the two projects be accepted? Why? c) For any positive value of the MARR, divide the possible MARR values into ranges with different decisions; describe and discuss what decision would be made in each range and why. You will need to calculate the crossover rate to determine the precise MARR where the decision changes. Include an NPV profile table and chart to illustrate your answer. Year 0 1 2 3 4 5 Cash Flow Cash Flow Project A Project B -450,000 -700,000 200,000 200,000 150,000 200,000 100,000 200,000 100,000 200,000 75,000 200,000arrow_forward
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