Question
The Brisbane Manufacturing Company produces a single model of a CD player. Each player is sold for $187 with a resulting contribution margin of
The Brisbane Manufacturing Company produces a single model of a CD player. Each player is sold for $187 with a resulting contribution margin of $76. Brisbane's management is considering a change in its quality control system. Currently, Brisbane spends $40,000 a year to inspect the CD players. An average of 1,800 units turn out to be defective: 1,440 of them are detected in the inspection process and are repaired for $80. If a defective CD player is not identified in the inspection process, the customer who receives it is given a full refund of the purchase price. The proposed quality control system involves the purchase of an x-ray machine for $210,000. The machine would last for five years and would have salvage value at that time of $21,000. Brisbane would also spend $460,000 immediately to train workers to better detect and repair defective units. Annual inspection costs would increase by $24,000. Brisbane expects this new control system to reduce the number of defective units to 400 per year. 335 of these defective units would be detected and repaired at a cost of only $50 per unit. Customers who still receive defective players will be given a refund equal to 120% of the purchase price. Questions 1 & 2 [0 points; unlimited tries] 1. What is the Year 3 cash flow if Brisbane keeps using its current system? Submit Answer Tries 0/99 2. What is the Year 3 cash flow if Brisbane replaces its current system? Submit Answer Tries 0/99 Questions 3 & 4 [5 points each; 5 tries each] 3. Assuming a discount rate of 8%, what is the net present value if Brisbane keeps using its current system? Submit Answer Tries 0/5
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