ExpansionChoice

ExpansionChoice - Expansion Choices Prof Nathan Globus...

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Expansion Choices
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Prof. Nathan Globus Shows You How Prof. Globus would like to show you a finance- based method for determining how you can expand your factory’s capacity in The Global Business Game. He will analyze the differential costs and revenues associated with various options. These options could entail expanding your Home Country’s plant, building a greenfield plant in another country and/or replacing Line Capacity with Automatons and changing the ratio of Auto1s to Auto2.
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Financial Analysis Basics When a firm wants to expand its capacity it should examine the opposing costs and benefits associated with the options available. Only the differential costs and benefits uniquely associated with each alternative are considered. This technique is purely quantitative, or deals with only those factors that can be quantified regarding how they affect profits and rates-of- return. Other quantitative factors affecting an investment’s economic benefits, such as trans-shipping Finished Goods, having the ability to customize product by markets, as well as the threat of losing projected profit margins due to aggressive competitor actions, must be handled by other techniques.
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Building or Acquiring Line Capacity One way to obtain more production is to add more Line Capacity to an existing plant. Another way would be to build an entirely new plant in another country. This capacity could be purchased from another firm in the industry if another firm wanted to sell off some of its capacity. New capacity can also be built from the ground up. This is the most common way to expand capacity because it puts more control in the expander’s hands.
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Line Capacity Assumptions The Home Country is the United States. Mexico is the only other country in the simulation. The only expansion source comes from using more Line Capacity-- Automatons will not be considered as a Labor Hour source. Two full shifts without Overtime will be scheduled each quarter with 7,800 27” sets scheduled on Shift1 and 7,974 25” TVs on Shift2. Costs and prices will not change over the game’s duration. Marketing and sales activities will be conducted in Mexico. The same medium-grade set will be sold in both countries.
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Identical and Differential Costs Identical Costs Construction Supervision Line Capacity Depreciation rates Line Supervisor wages Ideal Line Maintenance Inbound Subassembly shipping if in the same Economic Zone Line Worker training
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ExpansionChoice - Expansion Choices Prof Nathan Globus...

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