10. 8.20 Samsung Electronics is trying to reduce supply chain risk by making more responsible make/buy decisions through improved cost estimation. A high-use component (expected usage is 5000 units per year) can be purchased for $25 per unit with delivery promised within a week. Alternatively, Samsung can make the component inhouse and have it readily available at a cost of $5 per unit, if equipment costing $150,000 is purchased. Labor and other operating costs are estimated to be $35,000 per year over the study period of 5 years. Salvage is estimated at 10% of first cost and MARR is 12% per year. Neglect the element of availability

(a) to determine the breakeven quantity, and

(b) to recommend making or buying at the expected usage level. 11. 8.21 A rural subdivision has several miles of access road that needs a new surface treatment. Alternative 1 provides a gravel base and pavement with an initial cost of $500,000 that will last for 15 years and has an annual upkeep cost of $100 per mile. Alternative 2 enhances the gravel base now at a cost of $50,000 and immediately (i.e., time 0) coats the surface with a durable hot oil mix, which costs $130 per barrel applied. A barrel covers 0.05 mile. Annual reapplication of the mix is required.

(a) If the discount rate is 6% per year, determine the number of miles at which the two alternatives break even.

(b) A drive in a pickup indicates a total of 12.5 miles of road. Which is the more economical alternative?