Top Global Industries (TGI) buys 3D printing machines to prototype parts in their Product Innovation Lab. Recently, they received an offer from a new entrant to the 3D printing business. Clark Analysis and Design (CAD) offers a new program. They provide machines for free and charge for maintenance and the raw materials. The sales representative for CAD has provided the following example: a $150,000 machine (costs CAD about $75K to build and deliver) is free for three years and TGI would pay $5,000 per year per machine for maintenance. TGI would pay for materials bought exclusively from CAD. TGI has five hundred 3D printers (roughly the technical equivalent of the CAD printer) in their lab and currently pay $60 per kg for material. The average age of the 3D printers is one year and the typical acquisition cost was $175K. Each machine is active for about 4000 hours a year and uses about 300 kg of material per year. Maintenance costs average $17,500 per machine per year. They are depreciated over three years and TGI pays 15% combined state/federal taxes. If they go with the CAD deal, they can sell their existing machines at 50% of book value. TGI uses a corporate MARR of 10% (after tax). Under this scenario: 1. What is the minimum price CAD can charge per kilogram to make this deal worthwhile? 2. Would you recommend taking the CAD deal? Why or why not? Top Global Industries (TGI) buys 3D printing machines to prototype parts in their Product Innovation Lab. Recently, they received an offer from a new entrant to the 3D printing business. Clark Analysis and Design (CAD) offers a new program. They provide machines for free and charge for maintenance and the raw materials. The sales representative for CAD has provided the following example: a $150,000 machine (costs CAD about $75K to build and deliver) is free for three years and TGI would pay $5,000 per year per machine for maintenance. TGI would pay for materials bought exclusively from CAD. TGI has five hundred 3D printers (roughly the technical equivalent of the CAD printer) in their lab and currently pay $60 per kg for material. The average age of the 3D printers is one year and the typical acquisition cost was $175K. Each machine is active for about 4000 hours a year and uses about 300 kg of material per year. Maintenance costs average $17,500 per machine per year. They are depreciated over three years and TGI pays 15% combined state/federal taxes. If they go with the CAD deal, they can sell their existing machines at 50% of book value. TGI uses a corporate MARR of 10% (after tax). Under this scenario: 1. What is the minimum price CAD can charge per kilogram to make this deal worthwhile? 2. Would you recommend taking the CAD deal? Why or why not
