Question

Example 1:

Life Force Ice Cream wants to expand their capacity by adding a new filling line for pints of super premium ice cream. What other source of financing could they use besides bank debt, cash or leasing?

Example 2:

Synergy Software wants to expand into 17,000 square feet of office space. There is a high variability of demand for their product and it looks like they can get a 5 year contract from their customer. Should they lease or buy the proposed space?

Example 3:

Big Ben’s Bearings and Hardware, relies on speed of delivery as a competitive advantage. Does it make sense for them to invest in excess capacity, assuming they can still remain profitable?

Example 4:

Socal Beverage is considering a capacity expansion. They do the math and come up with a capacity number, but neglect to take into account the need for excess capacity. Most likely they neglected to determine a _______   ________ which =100% - %Average Utilization Rate.

Example 5:

Prince of Peace, LLC manufactures blank DVD’s which are then sold to video production companies. Their utilization rate is 79%, their maximum capacity is 133,000 units per day. What is their average output per day?

Example 6:

Marian Technologies is based in Baltimore, Maryland and makes and distributes specialized memory circuits for different types of computers. Currently they are shipping all over the United States. If they decide to start shipping to Ghana and Ethiopia, what will happen to their capacity assuming their employment stays constant?

Example 7:

Wal Mart recently decided against renewing Ethereal Beverage’s contract for producing 16 oz. private label drinkable yogurt for 18 stores in Southeastern Tennessee. Assuming there are no additional customers able to absorb that volume, and Ethereal is committed to long term employment contracts, what will happen to Ethereal’s unit costs in the short term?

Example 8:

Mystic Monk Coffee is considering additional roasting machines for its production facility. If the Eastern Purity blend has a monthly demand of 2,500 lbs. and requires 1 hour per pound to process, and the Ocean of Mercy blend has a monthly demand of 6,700 lbs., and requires 2 hours per pound to process, how many machines should they purchase if each machine can yield 2,300 hours of production per month? They have no capacity cushion.

Example 9:

Greater Good Egg Processors wants to expand capacity. Since they process a highly perishable product, they can shut down production for a maximum of 30 hours at a time from Friday at 7pm to Sunday at 1am. When calculating the cost to expand capacity, how significant is this issue and how does it affect total costs of expansion.

Answer 1

Answering the first question as per Chegg guidelines:

1. The other sources of financing which the company could use besides bank debts, cash or leasing are as follows:

• Debt Capital: This capital for business is raised by taking loans from financial institutions. This loan is to be repaid by business within a pre-promised stipulated time.
• Retained Earnings: The profits made by the company in the past as well as in the present can be used as funds for the business. Usually companies feed in the profits as the capital for business.
• Equity Capital: This capital is the funds generated from investors in exchange of some stocks of the company. The stocks give a part of ownership of business, to the investor
• Venture Funding: The investors in this case, provide their capital to the venture funding companies. These companies use the funds and invest them in companies and businesses with profitable future. The risk involved in this kind of funding is quite high
• Lease Finance: The company, which requires fund, gives out its fixed asset to another company or institution on lease basis. The other institution will be required to pay the parent business, for the usage of the fixed asset