You are a widget manufacturer. You create widgets that sell in large quantities to various Telecomm companies.
Question:
You are a widget manufacturer. You create widgets that sell in large quantities to various Telecomm companies. You are currently at your maximum capacity (10,000 units a month). Your widgets sell for $25 and cost you $21.25 to make. In the future, you expect your sales to continue increasing by at least 3% a year. You have the opportunity to purchase some new equipment to increase production rates to 25,000 units a month and reduce the unit cost by $0.50 per unit. You must finance the purchase at an ANNUAL interest rate of 8%, payments made quarterly.
a. Assume you can immediately sell all widgets you make. If the machine will cost $1,000,000, how quickly can you payback to loan?
b. What should the loan payments be for part a?
c. If the machine will cost $1,500,000, with equal payments of $25,000, how many additional widgets (over 10,000) must you sell each month in order to break even?
d. How long will it take to repay the loan for part c?
Managerial Decision Modeling with Spreadsheets
ISBN: 978-0136115830
3rd edition
Authors: Nagraj Balakrishnan, Barry Render, Jr. Ralph M. Stair