Consider two manufacturing firms: Mutty Bites, which manufactures dry dog food, and Cyber Ultronics, which manufactures humanoid robots. The two firms share some similarities. For example, both firms have revenues of $100,000,000 per year. Further, both firms are considering investing in manufacturing system enhancements that could improve internal manufacturing efficiencies that would initially increase profits by $500,000 per year. Both system projects are estimated to cost $1,200,000 over the course of Year 0. (You can assume the $500,000 per year business benefits start immediately at the beginning of Year 1.) Of course, the firms are quite different in other ways. Mutty Bites uses a manufacturing process of extruding pellets of dog food that has been fundamentally stable and unchanged for many years. In contrast, Cyber Ultronics’s manufacturing process is constantly evolving, including the increasing use of its own products in the manufacturing process (i.e., robots building other robots).

The questions are as follows:

- How many years into the future should each firm project $500k in business benefits?

- If you were a shareholder in each of these firms, which of these projects would you support?

Answer rating: 100% (QA)

To determine how many years into the future each firm should project 500000 in business benefits we need to calculate the payback period for each proj... View the full answer