ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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3. A supermarket chain buys loaves of bread from its supplier at $0.50 per loaf. The chain is
considering two options to bake its own bread.
Machine A Machine B
Capital investment
Useful life (years)
$8,000
$16,000
7
7
Annual fixed cost
$2,000
$0.26
$4,000
Variable cost per loaf
$0.16
Neither machine has a market value at the end of seven years, and MARR is 12% per year.
a. What is the minimum number of loaves that must be sold per year to justify installing
Machine A instead of buying the loaves from the supplier?
b. What is the minimum number of loaves that must be sold per year to justify installing
Machine B instead of buying the loaves from the supplier?
If the demand for bread at this supermarket is 35,000 loaves per year, what strategy should
be adopted for acquiring bread? Both Machine A and Machine B are capable of meeting
annual demand. The strategies are as follows:
i) Continue buying from the supplier. (ii) Install Machine A. (iii) Install Machine B. (iv) Install
C.
both Machine A and Machine B.
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Transcribed Image Text:3. A supermarket chain buys loaves of bread from its supplier at $0.50 per loaf. The chain is considering two options to bake its own bread. Machine A Machine B Capital investment Useful life (years) $8,000 $16,000 7 7 Annual fixed cost $2,000 $0.26 $4,000 Variable cost per loaf $0.16 Neither machine has a market value at the end of seven years, and MARR is 12% per year. a. What is the minimum number of loaves that must be sold per year to justify installing Machine A instead of buying the loaves from the supplier? b. What is the minimum number of loaves that must be sold per year to justify installing Machine B instead of buying the loaves from the supplier? If the demand for bread at this supermarket is 35,000 loaves per year, what strategy should be adopted for acquiring bread? Both Machine A and Machine B are capable of meeting annual demand. The strategies are as follows: i) Continue buying from the supplier. (ii) Install Machine A. (iii) Install Machine B. (iv) Install C. both Machine A and Machine B.
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