Unformatted text preview: Capacity Planning
1. Based on past experience, a chemicals ﬁrm estimates that the cost of new capacity additions obeys the law f(y) = 4+.2y where y is measured in tons and f (y ) is measured in millions of dollars. Demand is growing at a rate of 300 tons per year and the accounting department recommends a rate of 12% per year for discounting future costs. Compute the optimal capacity expansion policy, i.e., time between successive capacity expansions. Solve this problem using Excel or Maple and plotting a graph of the NPV of costs. Also, plot the ﬁrst derivative of the NPV of costs. 2. It is estimated that the cost of new capacity additions obeys the law f (y ) = 4 + .2y if y < 200 and f (y ) = 5 + .15y if y ≥ 200. Demand is growing at a rate of 200 units per year and the accounting department recommends a rate of 10% per year for discounting future costs. Compute the optimal capacity expansion policy, i.e., time between successive capacity expansions. Solve this problem using Excel or Maple and graphing the NPV of costs. Develop a numerical solution procedure which does not require us to plot a graph of the NPV of costs. 3. Solve problems 44, 45, 46, and 47 in Chapter 1 (same problems in both 5th and 6th editions). 1 ...
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 Spring '08
 Staff
 new capacity additions, optimal capacity expansion, successive capacity expansions, capacity expansion policy

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