One of your Taiwanese suppliers has bid on a new line of molded plastic parts that is currently being assembled at your plant. The supplier has bid s0.10 per part, given a forecast you provided of 100,000 parts in year t 300.000 in year 2; and 500.000 in year 3. Shipping and handling of parts from the supplier's factory is estimated at $0.02 per unit. Additional inventory handling charges should amount to $0.004 per unit. Finally, administrative costs are estimated at $10 per month. Although your plant is able to continue producing the part, the plant would need to invest in another molding machine, which would cost $10,000. Direct materials can be purchased for $0.05 per unit. Direct labor is estimated at $0.03 per unit plus a 50 percent surcharge for benefits; indirect labor is estimated at $0.013 per unit plus 50 percent benefits Up-front engineering and design costs will amount to $40,000. Finally, management has insisted that overhead be allocated if the parts are made in-house at a rate of 100 percent of direct labor cost. The firm uses a cost of capital of 15 percent per year a. Calculate the difference in NPVS between the Make and Buy options. Express all costs as positive values in your calculations. It is suggested to use the NPV function in Excel. (Do not round intermediate calculations. Round your answer to 2 decimal places) Dfference in NPV b. Should you continue to produce in-house or accept the bid from your Taiwanese supplier?
One of your Taiwanese suppliers has bid on a new line of molded plastic parts that is currently being assembled at your plant. The supplier has bid s0.10 per part, given a forecast you provided of 100,000 parts in year t 300.000 in year 2; and 500.000 in year 3. Shipping and handling of parts from the supplier's factory is estimated at $0.02 per unit. Additional inventory handling charges should amount to $0.004 per unit. Finally, administrative costs are estimated at $10 per month. Although your plant is able to continue producing the part, the plant would need to invest in another molding machine, which would cost $10,000. Direct materials can be purchased for $0.05 per unit. Direct labor is estimated at $0.03 per unit plus a 50 percent surcharge for benefits; indirect labor is estimated at $0.013 per unit plus 50 percent benefits Up-front engineering and design costs will amount to $40,000. Finally, management has insisted that overhead be allocated if the parts are made in-house at a rate of 100 percent of direct labor cost. The firm uses a cost of capital of 15 percent per year a. Calculate the difference in NPVS between the Make and Buy options. Express all costs as positive values in your calculations. It is suggested to use the NPV function in Excel. (Do not round intermediate calculations. Round your answer to 2 decimal places) Dfference in NPV b. Should you continue to produce in-house or accept the bid from your Taiwanese supplier?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:One of your Taiwanese suppliers has bid on a new line of molded plastic parts that is currently being assembled at your plant. The
supplier has bid s0.10 per part, given a forecast you provided of 100,000 parts in year 1, 300.000 in year 2; and 500.000 in year 3.
Shipping and handiling of parts from the supplier's factory is estimated at $0.02 per unit. Additional inventory handling charges should
amount to $0.004 per unit. Finally, administrative costs are estimated at $10 per month.
Although your plant is able to continue producing the part, the plant would need to invest in another molding machine, which would
cost $10,000. Direct materials can be purchased for $0.05 per unit. Direct labor is estimated at $0.03 per unit plus a 50 percent
surcharge for benefits; indirect labor is estimated at $0.013 per unit plus 50 percent benefits. Up-front engineering and design costs
will amount to $40,000. Finally, management has insisted that overhead be allocated if the parts are made in-house at a rate of 100
percent of direct labor cost. The firm uses a cost of capital of 15 percent per year.
a. Calculate the difference in NPVs between the Make and Buy options. Express all costs as positive values in your calculations. It is
suggested to use the NPV function in Excel. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Difference in NPV
b. Should you continue to produce in-house or accept the bid from your Taiwanese supplier?
O Produce in-house
O Accept the bid
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