Problem 6-5
Discount Factor 0.1
Current Capacity in Asia = 2,400,000
Current Capacity in N. America = 4,200,000
Current Annual Demand in Asia = 2,000,000 No Addition
Current Annual Demand in N. America = 4,000,000
Year 0 Year 1 Year 2
Year 1 Demand Asia N. America Probability
Asia-Asia Asia-America
America–
America
America–
Asia
Revenue Cost Profit 142,000,000 153,900,000$ 155,304,000$
3,000,000 4,400,000 0.35 2,400,000 – 4,200,000 – 264,000,000$ 107,400,000$ 156,600,000$
2,400,000 4,400,000 0.15 2,400,000 – 4,200,000 – 264,000,000$ 107,400,000$ 156,600,000$ NPV 410,259,504.13$
3,000,000 3,600,000 0.35 2,400,000 – 3,600,000 600,000 264,000,000$ 109,200,000$ 154,800,000$
2,400,000 3,600,000 0.15 2,400,000 – 3,600,000 – 240,000,000$ 97,200,000$ 142,800,000$
Year 2 Demand Asia N. America Probability
Asia-Asia Asia-America
America–
America
America–
Asia
Revenue Cost Profit
4,500,000 4,840,000 0.1225 2,400,000 – 4,200,000 – 264,000,000$ 107,400,000$ 156,600,000$
3,600,000 4,840,000 0.0525 2,400,000 – 4,200,000 – 264,000,000$ 107,400,000$ 156,600,000$
4,500,000 3,960,000 0.1225 2,400,000 – 3,960,000 240,000 264,000,000$ 108,120,000$ 155,880,000$
3,600,000 3,960,000 0.0525 2,400,000 – 3,960,000 240,000 264,000,000$ 108,120,000$ 155,880,000$
3,600,000 4,840,000 0.0525 2,400,000 – 4,200,000 – 264,000,000$ 107,400,000$ 156,600,000$
2,880,000 4,840,000 0.0225 2,400,000 – 4,200,000 – 264,000,000$ 107,400,000$ 156,600,000$
3,600,000 3,960,000 0.0525 2,400,000 – 3,960,000 240,000 264,000,000$ 108,120,000$ 155,880,000$
2,880,000 3,960,000 0.0225 2,400,000 – 3,960,000 240,000 264,000,000$ 108,120,000$ 155,880,000$
4,500,000 3,960,000 0.1225 2,400,000 – 3,960,000 240,000 264,000,000$ 108,120,000$ 155,880,000$
3,600,000 3,960,000 0.0525 2,400,000 – 3,960,000 240,000 264,000,000$ 108,120,000$ 155,880,000$
4,500,000 3,240,000 0.1225 2,400,000 – 3,240,000 960,000 264,000,000$ 110,280,000$ 153,720,000$
3,600,000 3,240,000 0.0525 2,400,000 – 3,240,000 960,000 264,000,000$ 110,280,000$ 153,720,000$
3,600,000 3,960,000 0.0525 2,400,000 – 3,960,000 240,000 264,000,000$ 108,120,000$ 155,880,000$
2,880,000 3,960,000 0.0225 2,400,000 – 3,960,000 240,000 264,000,000$ 108,120,000$ 155,880,000$
3,600,000 3,240,000 0.0525 2,400,000 – 3,240,000 960,000 264,000,000$ 110,280,000$ 153,720,000$
2,880,000 3,240,000 0.0225 2,400,000 – 3,240,000 480,000 244,800,000$ 100,680,000$ 144,120,000$
Sale Price of Phone = 40.00$
Variable Production Cost in Asia = 15.00$
Variable Production Cost in N. America = 17.00$
Ship between Markets 3.00$
Capacity of Large Addition = 2,000,000
Cost of Large Addition = 18,000,000$
Capacity of Small Addition = 1,500,000
Cost of Small Addition = 15,000,000$
Expected Profit
Demand
Quantity sold
Demand
Quantity sold
No Capacity Addition
Problem 6-5
Discount Factor 0.1
Current Capacity in Asia = 2,400,000
Current Capacity in N. America = 4,200,000
Current Annual Demand in Asia = 2,000,000 Small Addition
Current Annual Demand in N. America = 4,000,000
Year 0 Year 1 Year 2
Year 1 Demand Asia N. America Probability
Asia-Asia Asia-America
America–
America
America–
Asia
Revenue Cost Profit 142,000,000 162,400,000$ 184,030,800$
3,000,000 4,400,000 0.35 3,000,000 200,000 4,200,000 – 296,000,000$ 120,000,000$ 176,000,000$
2,400,000 4,400,000 0.15 2,400,000 200,000 4,200,000 – 272,000,000$ 111,000,000$ 161,000,000$ NPV 426,727,933.88$
3,000,000 3,600,000 0.35 3,000,000 – 3,600,000 – 264,000,000$ 106,200,000$ 157,800,000$
2,400,000 3,600,000 0.15 2,400,000 – 3,600,000 – 240,000,000$ 97,200,000$ 142,800,000$
Year 2 Demand Asia N. America Probability
Asia-Asia Asia-America
America–
America
America–
Asia
Revenue Cost Profit
4,500,000 4,840,000 0.1225 3,900,000 – 4,200,000 – 324,000,000$ 129,900,000$ 194,100,000$
3,600,000 4,840,000 0.0525 3,600,000 300,000 4,200,000 – 324,000,000$ 130,800,000$ 193,200,000$
4,500,000 3,960,000 0.1225 3,900,000 – 3,960,000 240,000 324,000,000$ 130,620,000$ 193,380,000$
3,600,000 3,960,000 0.0525 3,600,000 – 3,960,000 – 302,400,000$ 121,320,000$ 181,080,000$
3,600,000 4,840,000 0.0525 3,600,000 300,000 4,200,000 – 324,000,000$ 130,800,000$ 193,200,000$
2,880,000 4,840,000 0.0225 2,880,000 640,000 4,200,000 – 308,800,000$ 126,120,000$ 182,680,000$
3,600,000 3,960,000 0.0525 3,600,000 – 3,960,000 – 302,400,000$ 121,320,000$ 181,080,000$
2,880,000 3,960,000 0.0225 2,880,000 – 3,960,000 – 273,600,000$ 110,520,000$ 163,080,000$
4,500,000 3,960,000 0.1225 3,900,000 – 3,960,000 240,000 324,000,000$ 130,620,000$ 193,380,000$
3,600,000 3,960,000 0.0525 3,600,000 – 3,960,000 – 302,400,000$ 121,320,000$ 181,080,000$
4,500,000 3,240,000 0.1225 3,900,000 – 3,240,000 600,000 309,600,000$ 125,580,000$ 184,020,000$
3,600,000 3,240,000 0.0525 3,600,000 – 3,240,000 – 273,600,000$ 109,080,000$ 164,520,000$
3,600,000 3,960,000 0.0525 3,600,000 – 3,960,000 – 302,400,000$ 121,320,000$ 181,080,000$
2,880,000 3,960,000 0.0225 2,880,000 – 3,960,000 – 273,600,000$ 110,520,000$ 163,080,000$
3,600,000 3,240,000 0.0525 3,600,000 – 3,240,000 – 273,600,000$ 109,080,000$ 164,520,000$
2,880,000 3,240,000 0.0225 2,880,000 – 3,240,000 – 244,800,000$ 98,280,000$ 146,520,000$
Sale Price of Phone = 40.00$
Variable Production Cost in Asia = 15.00$
Variable Production Cost in N. America = 17.00$
Ship between Markets 3.00$
Capacity of Large Addition = 2,000,000
Cost of Large Addition = 18,000,000$
Capacity of Small Addition = 1,500,000
Cost of Small Addition = 15,000,000$
Expected Profit
Add 1.5 million Capacity to Asia
Demand
Quantity sold
Demand
Quantity sold
Problem 6-5
Discount Factor 0.1
Current Capacity in Asia = 2,400,000
Current Capacity in N. America = 4,200,000
Current Annual Demand in Asia = 2,000,000 Large Addition
Current Annual Demand in N. America = 4,000,000
Year 0 Year 1 Year 2
Year 1 Demand Asia N. America Probability
Asia-Asia Asia-America
America–
America
America–
Asia
Revenue Cost Profit 142,000,000 162,400,000$ 189,030,200$
3,000,000 4,400,000 0.35 3,000,000 200,000 4,200,000 – 296,000,000$ 120,000,000$ 176,000,000$
2,400,000 4,400,000 0.15 2,400,000 200,000 4,200,000 – 272,000,000$ 111,000,000$ 161,000,000$ NPV 427,859,669.42$
3,000,000 3,600,000 0.35 3,000,000 – 3,600,000 – 264,000,000$ 106,200,000$ 157,800,000$
2,400,000 3,600,000 0.15 2,400,000 – 3,600,000 – 240,000,000$ 97,200,000$ 142,800,000$
Year 2 Demand Asia N. America Probability
Asia-Asia Asia-America
America–
America
America–
Asia
Revenue Cost Profit
4,500,000 4,840,000 0.1225 4,400,000 – 4,200,000 – 344,000,000$ 137,400,000$ 206,600,000$
3,600,000 4,840,000 0.0525 3,600,000 640,000 4,200,000 – 337,600,000$ 136,920,000$ 200,680,000$
4,500,000 3,960,000 0.1225 4,400,000 – 3,960,000 100,000 338,400,000$ 135,320,000$ 203,080,000$
3,600,000 3,960,000 0.0525 3,600,000 – 3,960,000 – 302,400,000$ 121,320,000$ 181,080,000$
3,600,000 4,840,000 0.0525 3,600,000 640,000 4,200,000 – 337,600,000$ 136,920,000$ 200,680,000$
2,880,000 4,840,000 0.0225 2,880,000 640,000 4,200,000 – 308,800,000$ 126,120,000$ 182,680,000$
3,600,000 3,960,000 0.0525 3,600,000 – 3,960,000 – 302,400,000$ 121,320,000$ 181,080,000$
2,880,000 3,960,000 0.0225 2,880,000 – 3,960,000 – 273,600,000$ 110,520,000$ 163,080,000$
4,500,000 3,960,000 0.1225 4,400,000 – 3,960,000 100,000 338,400,000$ 135,320,000$ 203,080,000$
3,600,000 3,960,000 0.0525 3,600,000 – 3,960,000 – 302,400,000$ 121,320,000$ 181,080,000$
4,500,000 3,240,000 0.1225 4,400,000 – 3,240,000 100,000 309,600,000$ 123,080,000$ 186,520,000$
3,600,000 3,240,000 0.0525 3,600,000 – 3,240,000 – 273,600,000$ 109,080,000$ 164,520,000$
3,600,000 3,960,000 0.0525 3,600,000 – 3,960,000 – 302,400,000$ 121,320,000$ 181,080,000$
2,880,000 3,960,000 0.0225 2,880,000 – 3,960,000 – 273,600,000$ 110,520,000$ 163,080,000$
3,600,000 3,240,000 0.0525 3,600,000 – 3,240,000 – 273,600,000$ 109,080,000$ 164,520,000$
2,880,000 3,240,000 0.0225 2,880,000 – 3,240,000 – 244,800,000$ 98,280,000$ 146,520,000$
Sale Price of Phone = 40.00$
Variable Production Cost in Asia = 15.00$
Variable Production Cost in N. America = 17.00$
Ship between Markets 3.00$
Capacity of Large Addition = 2,000,000
Cost of Large Addition = 18,000,000$
Capacity of Small Addition = 1,500,000
Cost of Small Addition = 15,000,000$
Expected Profit
Demand
Quantity sold
Demand
Quantity sold
Add 2 million Capacity to Asia
Problem 6-6
Discount factor 0.1
Current Capacity in Italy = 1,000,000
Current Capcity in China = 1,000,000
Current Annual Demand = 1,900,000
Capacity Remains as Is
Total Cost
Year 0 Year 1 Year 2 Year 3
Year 1 Currency Exchange China Cost Probability
Italy
Production
China
production
Italy
Production
China
production
Italy 9,000,000 9,000,000 9,000,000 9,125,000
8.05 0.5 900,000 1,000,000 400,000 1,500,000 China 7,000,000 7,350,000 7,717,500 7,970,298
6.65 0.5 900,000 1,000,000 400,000 1,500,000
NPV 57,523,703$
Year 2 Currency Exchange
9.26 0.25 900,000 1,000,000 400,000 1,500,000
7.65 0.25 900,000 1,000,000 400,000 1,500,000
Capacity Moved from Italy to China
7.65 0.25 900,000 1,000,000 400,000 1,500,000
6.32 0.25 900,000 1,000,000 400,000 1,500,000 Total Cost
Year 0 Year 1 Year 2 Year 3
Year 3 Currency Exchange Italy 4,000,000 4,000,000 4,000,000 4,125,000
10.65 0.125 1,000,000 900,000 500,000 1,400,000 China 12,500,000 11,025,000 11,576,250 12,021,986
8.79 0.125 900,000 1,000,000 400,000 1,500,000
8.79 0.125 900,000 1,000,000 400,000 1,500,000
NPV 55,163,494$
7.27 0.125 900,000 1,000,000 400,000 1,500,000
8.79 0.125 900,000 1,000,000 400,000 1,500,000
7.27 0.125 900,000 1,000,000 400,000 1,500,000
7.27 0.125 900,000 1,000,000 400,000 1,500,000
6.00 0.125 900,000 1,000,000 400,000 1,500,000
Variable Production Cost in Italy = 10.00
Variable Production Cost in China = 7.00
Change in Capacity 500,000
Cost of Moving Capacity 2,000,000.00
Move 500K Capacity to
China
Capacity as is
Problem 6-7
Discount Factor 0.1
Current Annual Demand = 4,000,000 Capacity of 2,000,000 in Each Plant
Total Cost
Year 0 Year 1 Year2 Year 3
Year 1 Currency Exchange Probability Europe 25,940,000 23,341,500 22,757,963 22,189,013
1.20 0.5 1.30 N. America 20,000,000 20,000,000 20,000,000 20,000,000
1.40 0.5 NPV 152,375,753$
Year 2 Currency Exchange
1.26 0.25 1.26
1.08 0.25 Capacity of 4,000,000 in N. America
1.47 0.25
1.26 0.25 Total Cost
Year 0 Year 1 Year2 Year 3
Year 3 Currency Exchange Europe
1.32 0.125 1.23 N. America 40,000,000 40,000,000 40,000,000 40,000,000
1.13 0.125
1.13 0.125 NPV 139,474,080$
0.97 0.125
1.54 0.125
1.32 0.125
1.32 0.125
1.13 0.125
Variable Production Cost in Europe = 9.00 euros
Variable Production Cost in N. America = 10.00 dollars
Exchange Rate 1.33
Extra Cost of Building Two Facilities 2,000,000
Euro to $
Euro to $
Euro to $