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Chapter 1: 3-4PE (page 71)
A useful tool for the economic analysis of a product development project.
In business, the time worth of currency is predicated on the premise that cash in the now is more valuable than future cash is referred to as net present value (NPV).
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A fast-food restaurant serves hamburgers, cheeseburgers, and chicken sandwiches. The restaurant counts a cheeseburger as equivalent to 1.25 hamburgers and chicken sandwiches as 0.8 hamburger. Current employment is five full-time employees who each work a 40-hour week. If the restaurant sold 700 hamburgers, 900 cheeseburgers, and 500 chicken sandwiches in one week, what is its productivity? What would its productivity have been if it had sold the same number of sandwiches (2,100), but the mix was 700 of each type?
Question: Consider the following financial data from the past year for Midwest Outdoor Equipment Corporation.
Gross income $25,240,000
Total sales 24,324,000
Total credit sales 18,785,000
Net income 2,975,000
Cost of goods sold 12,600,000
Total assets 10,550,000
Average inventory 2,875,000
Average receivables 3,445,000
a. Compute the receivable turnover ratio.
b. Compute the inventory turnover ratio.
c. Compute the asset turnover ratio.
Question: Live Trap Corporation received the data below for its rodent cage production unit. Find the total productivity.
Perot Corporation is developing a new CPU chip based on a new type of technology. Its new chip, the Patay2 chip, will take two years to develop. However, because other chip manufacturers will be able to copy the technology, it will have a market life of two years after it is introduced. Perot expects to be able to price the chip higher in the first year, and it anticipates a significant production cost reduction after the first year as well. The relevant information for developing and selling the Patay2 is given below
Patay2 Chip Product Estimates
Patay2 Chip Project Timing
a. What are this project's yearly cash flows and their present value (discounted at 10 percent)? What is the net present value?
b. Perot鈥檚 engineers have determined that spending \(10 million more on developmentwill allow them to add even more advanced features. Having a more advanced chipwill allow them to price the chip \)50 higher in both years (\(870 for year 1 and \)700for year 2). Is it worth the additional investment?
c. c. If sales are only 200,000 the first year and 100,000 the second year, would Perot stilldo the project?
Lazer Technologies Inc. (LTI) has produced a total of 20 high-power laser systems that could be used to destroy any approaching enemy missiles or aircraft. The 20 units havebeen produced and funded in part as private research within the research and development arm of LTI, but the bulk of the funding came from a contract with the U.S. Department of Defense (DoD). Testing of the laser units has shown that they are effective defense weapons, and through a redesign to add portability and easier field maintenance, the units could be truck-mounted. DoD has asked LTI to submit a bid for 100 units. The 20 units that LTI has built so far cost the following amounts and are listed in the order in which they were produced:
a. Based on past experience, what is the learning rate?
b. What bid should LTI submit for the total order of 100 units, assuming that learning continues?
c. What is the cost expected to be for the last unit under the learning rate you estimated?
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