An automobile company needs to decide of outsourcing shafts or producing shafts in the company. If the company outsource the shafts, the shafts could be purchased kin the first year for $30 per shaft but the price of shaft for the subsequent years will increase by 5% from the previous year. If the company decide to produce the shafts, an investment of $3,000,000 needed for equipment and upgrades. The total annual cost associated with production (e.g. fixed, variable, labor and material cost) is $1,000,000. The annual demand is 40,000 shafts for the next 7 years. The new equipment purchased will have a salvage value of $450,000 at the end of year 7.
An automobile company needs to decide of outsourcing shafts or producing shafts in the company. If the company outsource the shafts, the shafts could be purchased kin the first year for $30 per shaft but the price of shaft for the subsequent years will increase by 5% from the previous year. If the company decide to produce the shafts, an investment of $3,000,000 needed for equipment and upgrades. The total annual cost associated with production (e.g. fixed, variable, labor and material cost) is $1,000,000. The annual demand is 40,000 shafts for the next 7 years. The new equipment purchased will have a salvage value of $450,000 at the end of year 7.
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 1P: Talbot Industries is considering launching a new product. The new manufacturing equipment will cost...
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