Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Valles Global Industries (VGI) buys 3D printing machines to prototype parts in their Product Innovation Lab. Recently, they received an offer from a new entrant

Valles Global Industries (VGI) 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. Park Analysis and Design (PAD) offers a new program. They provide machines for free and charge for maintenance and the raw materials. The sales representative for PAD has provided the following example: a $150,000 machine (costs PAD about $75K to build and deliver) is free for three years and VGI would pay $5,000 per year per machine for maintenance. VGI would pay for materials bought exclusively from PAD.

VGI has five hundred 3D printers (roughly the technical equivalent of the PAD 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 VGI pays 15% combined state/federal taxes. If they go with the PAD deal, they can sell their existing machines at 50% of book value. VGI uses a corporate MARR of 10% (after tax). Please give detail and step by step explanation in Excel

Under this scenario:

  1. What is the minimum price PAD can charge per kilogram to make this deal worthwhile?
  2. Would you recommend taking the PAD deal? Why or why not?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals Of Financial Management

Authors: James C Van Horne

3rd Edition

0133393410, 978-0133393415

More Books

Students also viewed these Finance questions

Question

3. Distinguish between experimental and non-experimental research.

Answered: 1 week ago

Question

What factors in Nooyis Five C model facilitate employee trust?

Answered: 1 week ago