Topic 4

Book: Operations and Supply Chain Management Jacobs & Chase 14e

8. Hightech Company designed a new computer chip. Its new chip, the Dolo2 will take 2 years to develop but it will only have a viable market life of two years after it is developed. It will price the chip higher the first year and because it will have to lower the price due to market pressure it is planning on finding new ways to reduce its production costs the second year. The relevant information about the project is as follows: Hint: Use method for solved problem pp. 112-115 in the text and example problem15.

Must use Excel.

Development costs $20,000,000

Pilot testing $5,000,000

Debugging $3,800,000

Ramp up cost $3,000,000

Pre Marketing $6,600,000

Marketing and support cost $1,000,000per year

Unit production cost year1 $655

Unit production cost year2 $545

Unit price year1 $820

Unit price year2 $650

Sales&prod volume yr1 250,000

Sales&prod volume yr2 150,000

Interest rate 10%

Project year 1 year 2 year3 year4

Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec

Devel ********************************

Pilot test *********************************

Debug ***************

Ramp up *******

AdvMkt *******

Marketing&spt ***********************************

Production&sales ***********************************

a. What are the yearly cash flows and their present value (discounted at the 10% rate of this project? What is the net present value of the project? use excel to work these problems.

b. Hightechs engineers have determined that spending $10,000,000 more on development will allow them to add even more advanced features. Having more advanced features will allow them to price the chip $50 higher in both years 3 and 4.

c. If sales are only 200,000 in year 3 and 100,000 in year 4 would high-tech still do the project?

Unit production cost year2 Unit price year 1 Unit price year 2 Sales&prod volume yrl Sales&prod volume yr2 Interest rate $545 S820 S650 250,000 150.000 100 Vear 2 Jan-Jun Jul-Dec year3 Jan-Jun Jul-Dec year+ Jan-Jun Jul-Dec Project year 1 Jan-Jun Jul-Dec Devel Pilotte= Debug Ramp up AdvMkt Marketing & spt Production & sales TAL a. What are the yearly cash flows and their present value (discounted at the 10% rate of this project? - 2129 words DS D Focus 28 E- Type here to search Unit production cost year2 Unit price year 1 Unit price year 2 Sales&prod volume yrl Sales&prod volume yr2 Interest rate $545 S820 S650 250,000 150.000 100 Vear 2 Jan-Jun Jul-Dec year3 Jan-Jun Jul-Dec year+ Jan-Jun Jul-Dec Project year 1 Jan-Jun Jul-Dec Devel Pilotte= Debug Ramp up AdvMkt Marketing & spt Production & sales TAL a. What are the yearly cash flows and their present value (discounted at the 10% rate of this project? - 2129 words DS D Focus 28 E- Type here to search