Problem 2

Burdell Labs is a diagnostic laboratory that does various tests (blood tests, urine tests, etc.) for doctors' offices in the Indianapolis area. Test specimens are picked up at the doctors' offices and are transported to the testing facility, with uniform arrivals throughout the day. The current capacity of the facility is 1,000 units per week. The facility operates 50 weeks per year. This year (year 0), test volumes are expected to reach 1,000 units per week. Growth per week is projected at an additional 200 units through year 5 (i.e., 1,200 per week in year #1, 1,400 per week in year #2, etc.). Pre-tax profits are expected to be $5 per test throughout the 5-year planning period. The following expansion plan is being considered:

• Expand the capacity at the end of year 0 to 1,500 units per week at a cost of $100,000. Then expand the capacity to 2,000 units per year at the end of year 3, at an additional cost at that time of $250,000.

Use a discount rate of 15%.

Use the table below to summarizes and calculate. You can copy the table on Excel, do your calculation using Excel, and copy it back here. (You must show the calculations in the table before you answer the questions. Take care to recognize output in units and $; also recognize weekly output vs. annual $.)

	Units per week			$$ per year
Year	Weekly Demand	Weekly Capacity	Additional output per week	Additional Outflow	Additional Inflow	Total	NPV
0
1
2
3
4
5