Chapter 6, Problem 19QP

Codeword Codeword is a medium-size firm that designs and manufactures electronic systems for the mass transit industry. It competes with other firms to win contracts to provide such systems. When Codeword receives a contract, it creates a project to complete the work. Most projects range from $10 million to $50 million in cost and from one to three years in duration. Codeword can have 6 to 12 projects going on at any one time, in various stages of completion—some just starting and others finishing. Codeword has a handful of project managers who report to the general manager; other people report to their functional manager. For example, the electronics engineers all report to the manager of electrical engineering, who reports to the general manager. The functional manager assigns particular individuals to work on various projects. Some people work full-time on a project, whereas others split their time among two or three projects. Although individuals are assigned to work for a project…

Mono Industries has a project with the following projected cash flows: Initial Cost, Year 0: P200,000 Cash flow year one: P25,000 Cash flow year two: P75,000 Cash flow year three: P150,000 Cash flow year four: P150,000 Using a 10% discount rate for this project and the NPV model, should this project be accepted or rejected?

A Las Vegas, Nevada, manufacturer has the option to make or buy one of its component parts. The annual requirement is 20,000 units. A supplier is able to supply the parts for $10 per piece. The firm estimates that it costs $600 to prepare the contract with the supplier. To make the parts in-house, the firm must invest $50,000 in capital equipment, and the firm estimates that it costs $8 per piece to make the parts in-house. Assuming that cost is the only criterion, use breakeven analysis to determine whether the firm should make or buy the item. 1. What is the breakeven quantity? 2. Should the manufacturer Make or Buy? 3. What is the cost savings using your decision in number 2 (above)? Show the total cost for each scenario then the savings amount.