Question

Chrysler is considering a cost reduction program. The suppliers must reduce the cost of the components that they furnish to Chrysler by 4% each year. (The total amount of savings would increase each year.) The initial costs: • Program Setup: $13,500,000 • Feasibility Study (completed six months ago): 1,400,000 • Supplier Training: 7,500,000 Chrysler is currently paying a total of $90,000,000 per year for components purchased from the vendors who will be involved in this program. (Assume that, if the program is not approved, the annual cost of purchased components will remain constant at $90,000,000 per year.) The program has been designed as a five-year initiative, and Chrysler's MARR for such projects is 12% (im). There will be annual operating expenses associated with the program for further training of vendors, updating internal documentation, and so on. Given the projected savings in purchased components, what would be the maximum annual operating expense for this program such that it is marginally justified? Assume that the EOY 1 cost for purchased components is $90,000,000. 5 Click the icon to view the interest and annuity table for discrete compounding when i = 12% per year. The PW if the program is approved is $1 million. (Round to one decimal place.) The PW if the program is not approved is $ million. (Round to one decimal place.) The maximum annual operating expense for this program is $0 million. (Round to two decimal places.)

Answer 1

Answer page-01 Given details program setup = $ 13500,000 feasibility study = $ 1800000 supplier Training = $ 7500000 cost reduced by 40% per year of the components Total cost of purchasing components = $90,000,000 minimum acceptable rate of return = 1211. Required cay calculating present worth if the program is approved Total cost = $90,000,000 + $13500000 +71800000+$ 4500000 =$112800000 net present worth is . $112800000 (0.04) = 2820000000 (6) calculating present worth if the program is not 0 apploved

page-02 . present worth if the program is not approved es $90,000,000 (c) maximum annual operating expenses for the program maximum annual operating expense for this program is approved by adding all cost which is equal to = 112800000