Purchasing from supplier:
Cost per loaf of bread = $0.50
Price of a loaf of bread = $0.75
Quantity of bread sold = 20,000 loaves per year
Annual cost = $0.50 * 20,000 = $10,000
Annual revenue = $0.75 * 20,000 = $15,000
Annual profit = Annual revenue - Annual cost = $15,000 - $10,000 = $5,000
Installing Machine A:
Capital investment = $8,000
Annual fixed cost = $2,000
Useful life = 7 years
MARR = 10% per year
From the compound interest factor table, we obtain
(A/P, 10%, 7) = 0.2054
Annualized cost of machine A = $8,000*(A/P, 10%, 7) + $2,000 = $8,000*0.2054 + $2,000 = $3,643.2
Annual revenue = Price * Quantity = $0.75 * 20,000 = $15,000
Annual profit = $15,000 - $3,643.2 = $11,356.8
Installing Machine B:
Capital investment = $12,000
Annual fixed cost = $3,500
Useful life = 7 years
Annualized cost of machine A = $12,000*(A/P, 10%, 7) + $3,500 = $12,000*0.2054 + $3,500 = $5,964.8
Annual revenue = Price * Quantity = $0.75 * 20,000 = $15,000
Annual profit = $15,000 - $5,964.8 = $9,035.2
From the above analysis, it can be observed that the annual profit is maximized when machine A is installed.
Ans: ii. Install Machine A
Q1. [40 marks] Answer the following multiple-choice questions (Please note that to score full marks in...
l Q1. [40 marks] Answer the following multiple-choice questions (Please note that to score full marks in a question, you have to select the correct option and provide a complete correct solution. If you select the correct option while providing an incomplete solution, you will be awarded 50% of the mark. If you select the correct option without providing a solution or if you select an incorrect option, you will get a zero.): a. [10 marks] A supermarket chain buys...
Answer the following multiple-choice questions. You have to select the correct option and provide a complete correct solution. Q1. a. A supermarket chain buys loaves of bread from its supplier at $0.5 per loaf and sells them at $0.75 per loaf. The chain is considering two options to bake its own bread. Capital investment Useful life (Years) Annual fixed costs Machine A $8,000 7 $2,000 Machine B $12,000 7 $3,500 Neither machine has a market value at the end of...
with the steps of the solution a. [10 marks] A supermarket chain buys loaves of bread from its supplier at $0.5 per loaf and sells them at $0.75 per loaf. The chain is considering two options to bake its own bread. Capital investment Useful life (Years) Annual fixed costs Machine A $8,000 7 $2,000 Machine B $12,000 7 $3,500 Neither machine has a market value at the end of seven years, and MARR is 10% per year. If the demand...
a. A supermarket chain buys loaves of bread from its supplier at $0.5 per loaf and sells them at $0.75 per loaf. The chain is considering two options to bake its own bread. Capital investment Useful life (Years) Annual fixed costs Machine A $8,000 7 $2,000 Machine B $12,000 7 $3,500 Neither machine has a market value at the end of seven years, and MARR is 10% per year. If the demand for bread at this supermarket is 20,000 loaves...
Answer the following multiple-choice question. You have to select the correct option and provide a complete correct solution. c. The city council is considering the purchase of a new fire truck. The capital investment is $50,000 and the maintenance expenses per year are $6,000. The fire truck has a life of six years and by using this truck there will be an annual reduction in fire damage of $20,000. If the MARR is 12% per year, what is the modified...
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SYNOPSIS The product manager for coffee development at Kraft Canada must decide whether to introduce the company's new line of single-serve coffee pods or to await results from the product's launch in the United States. Key strategic decisions include choosing the target market to focus on and determining the value proposition to emphasize. Important questions are also raised in regard to how the new product should be branded, the flavors to offer, whether Kraft should use traditional distribution channels or...