Question: your company is considering whether to outsource a component or manufacture it in-house. you need 10,000 components per month. The variable costs are $2 per
your company is considering whether to outsource a component or manufacture it in-house. you need 10,000 components per month. The variable costs are $2 per unit if manufactured in-house, but if you buy the component from a vendor you will have to pay $6.50 per unit. However, to manufacture in house you need a macine. The machine has a life of 5 years and has no salvage value at the end of its life. Assume the component cost occurs at the end of each month and that you need the same number of components every month. Your discount rate is .8% per month. What is the maximum you can afford to pay for the machine?
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