Exercises2008 - Review Exercises Prelim #2 AEM220-2008...

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Review Exercises – Prelim #2 – AEM220-2008 Prof. Pedro David Pérez 1. You are in charge of a photocopying concessionary at a large University. There is an opportunity to buy a new machine for $12,000. Its cost per copy is $.01, and the agreed price per copy to the University is $.05. Calculate the breakeven point in dollars and in units. If your company stipulates a payback period of a year or less to consider such investments, what should be the minimum average daily copying load? Show all your calculations and assumptions. 2. Dr. Aleda Roth, a prolific author, is considering starting her own publishing company. She will cal it DSI Publishing, Inc. DSI’s estimated costs are Fixed: $250,000.00 Variable cost per book: $20.00 Selling price per book: $30.00 How many books must DSI sell to break even? 3. In addition to the costs above, Dr. Roth wants to pay herself a salary of $50,000 per year. Calculate the new breakeven point in units and dollars. What is the new payback period? Should Dr. Roth go ahead and reward herself? Why? Why not? 4. Your team outsources some statistical analyses to a consultant for a total of $2000/year. An applications vendor has offered a tailored package that, for $7500, allows us to let go of the consultant. The package, however, will be obsolete in five years. Calculate the payback period and the net present value, if the discount rate of the project is estimated at 10%. What conclusions do you reach with each criterion? Which one would you follow? What other criteria would you consider to make this decision?
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This note was uploaded on 04/05/2008 for the course AEM 2200 taught by Professor Perez,p.d. during the Spring '07 term at Cornell University (Engineering School).

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Exercises2008 - Review Exercises Prelim #2 AEM220-2008...

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