Question
You are a widget manufacturer. You create widgets that sell in large quantities to various Telecomm companies. You are currently at your maximum capacity (10,000
You are a widget manufacturer. You create widgets that sell in large quantities to various Telecomm companies. You are currently at your maximum capacity (10,000 units a month). Your widgets sell for $25 and cost you $21.25 to make. In the future, you expect your sales to continue increasing by at least 3% a year. You have the opportunity to purchase some new equipment to increase production rates to 25,000 units a month and reduce the unit cost by $0.50 per unit. You must finance the purchase at an ANNUAL interest rate of 8%, payments made quarterly.
a. Assume you can immediately sell all widgets you make. If the machine will cost $1,000,000, how quickly can you payback to loan?
b. What should the loan payments be for part a?
c. If the machine will cost $1,500,000, with equal payments of $25,000, how many additional widgets (over 10,000) must you sell each month in order to break even?
d. How long will it take to repay the loan for part c?
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