You have been employed with Advanced Machine Company (AMC) for six months, since finishing your engineering degree at Oklahoma State University. AMC has been in business for over 50 years, and has recently moved from Detroit to Gainesville, Georgia. The reason for the move was the rising costs associated with their aging, old facility. Your boss is the production supervisor, Chase Smith. Last Friday, Chase called a meeting which included the head of manufacturing engineering, head of marketing and several others from sales. In addition, the company's CEO, Steve Baker was in attendance. The purpose of the meeting was to consider a request for proposal (RFP), which came from one of AMC's largest customers. The problem, and the reason for the meeting, is that the RFP would exceed current production capabilities of AMC. However, the new facility was not projected to operate a full capacity so has room for expansion. A few highlights from this meeting include: 1. Chase pushed to have AMC bid on the RFP even though it involves new production capability 2. RFP calls for a five-year delivery plan 3. Chase would like each manufacturing alternative investigated from an economic standpoint and has assigned this task to you to begin after the meeting 4. Steve emphasized that: 2. The customer has been a long-standing customer for AMC and he would like to support them by participating in the RFP b. Even when extra product has been produced in the past, the sales department has found ways to sell to other customers c. He would like the economic evaluation completed by Wednesday, December 9th at 10 am. d. There is surplus equipment in the warehouse that could be used to help keep costs down The next day you and the head of manufacturing engineering visited the warehouse and found that equipment was there that the company could use. You both determined that the only new piece of equipment needed is a new engine lathe. E-mail discussion with the group did not come to a consensus on exactly what is needed. Some were in favor of a higher end equipment so it could be used for further jobs, and others wanted to look for the most inexpensive equipment which could satisfy this specific RFP. Over the next few days, you were able to determine that there are basically four different types of machines ranging from the traditional manual engine lathe to a computer-controlled lathe with robotic load/unload and tolerance checks. After reaching out to various manufacturers and their sales representatives, you obtained the following information: Machine Type A: Manual B: Semiautomatic C: Automatic D: Automatic with robotic load/unload Purchase Cost (S) Annual Maintenance Cost (5) 18.000 1,350 27,000 2,430 64,000 4,250 120,000 14,400 Machines A and B would each require a full-time operator. A single operator could service two of Machine Type C and Machine Type D would require no operator. After consulting with the production manager about the skill level required, you also checked with accounting and found that an operator would be paid at $18.29 an hour. AMC's workers are employed for 8 hour shifts and can work 250 days per year. If needed, the company can run three 8 hour shifts per day. A 25% incentive is added to the base pay for employees on the second or third shifts. The team decided that the analysis should be based on production of 60,000 units per year. You also noted that each of the machines has a different production rate and set-up procedure. Each manufacturer claims an expected life of about one million pieces. In addition, they all use the same cutting technique, which implies that the tool and material costs should be about the same. Based on this information, you came up with the summary information below: Machine Setup Cost (5) Production Rate Material + Tool (pieces/hour) Cost/Piece 750 6 $ 0.50 1000 12 S 0.50 3000 30 S 0.50 6000 30 $ 0.50 A B D In addition, you asked about the discount rate used by AMC and the lead accountant told you that they use a corporate income- tax rate of 25% and the after-tax MARR is 10%. The team will meet again on December 9th at 10 am for you to present your analysis and findings. The expectation is that your findings will determine whether or not AMC responds to the RFP. 1. Identify the investment alternatives: You should consider alternative options, possibly including the do- nothing alternative as well. 2. Define the planning horizon: The period of time over which to analyze the alternatives should be stated. 3. Specify the discount rate: MARR should be clearly stated. 4. Estimate the cash flows: Estimates of cash flows should be detailed for each alternative. Cash flows should be presented in both table and graph form. All assumptions should be clearly stated. 5. Compare the alternatives: Use PW and IRR to compare the alternatives, with results presented for each. 6. Perform supplementary analyses: Clearly state conditions under which your project decision would change. 7. Select the preferred alternative: The preferred alternative should be chosen based on the economic criteria from the course. You have been employed with Advanced Machine Company (AMC) for six months, since finishing your engineering degree at Oklahoma State University. AMC has been in business for over 50 years, and has recently moved from Detroit to Gainesville, Georgia. The reason for the move was the rising costs associated with their aging, old facility. Your boss is the production supervisor, Chase Smith. Last Friday, Chase called a meeting which included the head of manufacturing engineering, head of marketing and several others from sales. In addition, the company's CEO, Steve Baker was in attendance. The purpose of the meeting was to consider a request for proposal (RFP), which came from one of AMC's largest customers. The problem, and the reason for the meeting, is that the RFP would exceed current production capabilities of AMC. However, the new facility was not projected to operate a full capacity so has room for expansion. A few highlights from this meeting include: 1. Chase pushed to have AMC bid on the RFP even though it involves new production capability 2. RFP calls for a five-year delivery plan 3. Chase would like each manufacturing alternative investigated from an economic standpoint and has assigned this task to you to begin after the meeting 4. Steve emphasized that: 2. The customer has been a long-standing customer for AMC and he would like to support them by participating in the RFP b. Even when extra product has been produced in the past, the sales department has found ways to sell to other customers c. He would like the economic evaluation completed by Wednesday, December 9th at 10 am. d. There is surplus equipment in the warehouse that could be used to help keep costs down The next day you and the head of manufacturing engineering visited the warehouse and found that equipment was there that the company could use. You both determined that the only new piece of equipment needed is a new engine lathe. E-mail discussion with the group did not come to a consensus on exactly what is needed. Some were in favor of a higher end equipment so it could be used for further jobs, and others wanted to look for the most inexpensive equipment which could satisfy this specific RFP. Over the next few days, you were able to determine that there are basically four different types of machines ranging from the traditional manual engine lathe to a computer-controlled lathe with robotic load/unload and tolerance checks. After reaching out to various manufacturers and their sales representatives, you obtained the following information: Machine Type A: Manual B: Semiautomatic C: Automatic D: Automatic with robotic load/unload Purchase Cost (S) Annual Maintenance Cost (5) 18.000 1,350 27,000 2,430 64,000 4,250 120,000 14,400 Machines A and B would each require a full-time operator. A single operator could service two of Machine Type C and Machine Type D would require no operator. After consulting with the production manager about the skill level required, you also checked with accounting and found that an operator would be paid at $18.29 an hour. AMC's workers are employed for 8 hour shifts and can work 250 days per year. If needed, the company can run three 8 hour shifts per day. A 25% incentive is added to the base pay for employees on the second or third shifts. The team decided that the analysis should be based on production of 60,000 units per year. You also noted that each of the machines has a different production rate and set-up procedure. Each manufacturer claims an expected life of about one million pieces. In addition, they all use the same cutting technique, which implies that the tool and material costs should be about the same. Based on this information, you came up with the summary information below: Machine Setup Cost (5) Production Rate Material + Tool (pieces/hour) Cost/Piece 750 6 $ 0.50 1000 12 S 0.50 3000 30 S 0.50 6000 30 $ 0.50 A B D In addition, you asked about the discount rate used by AMC and the lead accountant told you that they use a corporate income- tax rate of 25% and the after-tax MARR is 10%. The team will meet again on December 9th at 10 am for you to present your analysis and findings. The expectation is that your findings will determine whether or not AMC responds to the RFP. 1. Identify the investment alternatives: You should consider alternative options, possibly including the do- nothing alternative as well. 2. Define the planning horizon: The period of time over which to analyze the alternatives should be stated. 3. Specify the discount rate: MARR should be clearly stated. 4. Estimate the cash flows: Estimates of cash flows should be detailed for each alternative. Cash flows should be presented in both table and graph form. All assumptions should be clearly stated. 5. Compare the alternatives: Use PW and IRR to compare the alternatives, with results presented for each. 6. Perform supplementary analyses: Clearly state conditions under which your project decision would change. 7. Select the preferred alternative: The preferred alternative should be chosen based on the economic criteria from the course