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  1. What is the hours-capacity requirement for these three examples:
    1. Cordless phones needed = 1 Million,  Time in machine hours = 0.1666 hours, 2 shifts (4100hrs), 10% cushion
    2. Ferrari Expensioso = 125 cars,  Time in employee hours = 350 hours, 1 shift (2000hrs), 0% cushion
    3. Municipal water pumps needed = 10,000 units,  Time installers = 150 minutes, 1 shift (2000hrs), 20% cushion
  2. A company is manufacturing garden rakes and sees that demand is more than they can handle in their current facility.  So, they plan to expand onto the building to make more capacity.  If they add onto the facility, it will cost $500,000 and requires an additional $300,000 in equipment/machinery for the expansion.  Also, overhead costs such as lighting, power, water, taxes, etc will increase by $75,000 per year.  The expected sales output will increase 45%.  Rake pricing is $10/rake starting in Year 1, but will increase $1 each year to keep up with inflation and improve margins.   If the company does NOT expand, sales of garden rakes are expected to be:

Year

1

2

3

4

5

Rake sales

150,000

 

 

 

 

  1. What is the cash flow for each year (this year and in years 0, 1, 2, 3, 4, 5)?
  2. If we ignore taxes, interest, depreciation and time value of money, how long will the payback be for the expansion scenario?