Chapter$-5$: Strategic Capacity Planning

Expando, Inc. is considering the possibility of building an additional factory that would produce a new addition to its product line. The company is currently considering two options. The first is a small facility that it could build at a cost of $$6$ million. If demand for new products is low, the company expects to receive $$10$ million in discounted revenues $($present value of future revenues$)$ with the small facility. On the other hand, if demand is high, it expeets $$12$ million in discounted revenues using the small facility. The second option is to build a large factory at a cost of $$9$ million. Were demand to be low, the company would expect $$10$ million in discounted revenues with the large plant. If demand is high, the company estimates that the discounted revenues would be $$14$ million. In either ease, the probability of demand being high is $\mathrm{.}40,$ and the probability of it being low is $\mathrm{.}60.$ Not constructing a new factory would result in no additional revenue being generated because the current factories cannot produce these new products. Construct a decision tree, calculate NPV for cach alternative, and help Expando make the best decision.

Chapter$-7$: Manufacturing Process

A book publisher has fixed costs of $$300,000$ and variable costs per book of $$8\mathrm{.}00.$ The book sells for $$23\mathrm{.}00$ per copy.

a$.$ How many books must be sold to break even?

b$.$ If the fixed cost increased, would the new break$-$even point be higher or lower?

c$.$ If the variable cost per unit decreased, would the new break$-$even point be higher or lower?

AudioCables, Inc., is currently manufacturing an adapter that has a variable cost of $$\mathrm{.}50$ per unit and a selling price of $$1\mathrm{.}00$ per unit. Fixed costs are $$14,000.$ Current sales volume is $30,000$ units. The firm can substantially improve the product quality by adding a new piece of equipment at an additional tixed cost of $$0,000.$ Variable costs would incrcase to $$60,$ but sales volume should jump to $50,000$ units due to a higher$-$quality product. Should AudioCables buy the new equipment?