Chapter 11
Evaluating and Selecting the
Facilities Plan
Answers to Problems at the End of Chapter 11 11-1
SECTION 11.2.1
11.1 If equipment need change sooner than anticipated, leasing can provide more flexibility
than purchasing equipment. Depending on the lease conditions, lease payments can be
11.2 Manufacturing space is usually more expensive than storage space. As manufacturing
needs expand, storage space is often converted to manufacturing space. If sufficient land
is not available for expansion of manufacturing and storage, then storage space is often
11.3 High-rise warehouses can be significantly less expensive to construct in terms of cubic
footage of storage space than conventional storage facilities; likewise, when land is
Answers to Problems at the End of Chapter 11 11-2
SECTION 11.2.2
11.4 The rank order of factors identified is dependent on the student’s judgment.
11.5 The rank order of factors identified is dependent on the student’s judgment.
Depending on the application, many factors should be considered in evaluating alternate
11.6 The rank order of factors identified is dependent on the student’s judgment.
Depending on the application, many factors should be considered in evaluating alternate
site locations for a distribution center. Among the various factors to be considered are the
Answers to Problems at the End of Chapter 11 11-3
SECTION 11.2.3
11.7 From the table below, Alternative B is preferred.
11.8a From the table below, Alternatives B and C are equally preferred. Alternative A has a
relatively close weighted factor total to B and C. To make a decision a “coin toss” may
11.8b From the table below, Alternative C is preferred.
11.8c From the table below, Alternative A is preferred.
Rating Score Rating Score Rating Score
Net Present Value 40 10 400 8320 6240
Time to Fill Customer‘s Order 35 6210 10 350 8280
Flexibility 25 5125 7175 10 250
Totals 100 735 845 770
Factor
Weight
A
B
C
Rating Score Rating Score Rating Score
Net Present Value 50 10 500 8400 6300
Time to Fill Customer‘s Order 10 660 10 100 880
Flexibility 40 5200 7280 10 400
Totals 100 760 780 780
Factor
Weight
A
B
C
Rating Score Rating Score Rating Score
Net Present Value 40 10 400 8320 6240
Time to Fill Customer‘s Order 35 5175 7245 10 350
Flexibility 25 5125 7175 10 250
Totals 100 700 740 840
Factor
Weight
A
B
C
Rating Score Rating Score Rating Score
Net Present Value 30 10 300 8240 6180
Time to Fill Customer‘s Order 20 6120 10 200 8160
Flexibility 10 550 770 10 100
Safety 40 10 400 8320 9360
Totals 100 870 830 800
Factor
Weight
A
B
C
11.9 From the table below, Alternative A is preferred.
11.10 From the table below, Alternative D is preferred.
11.11 From the table below, using the weights from Problem 9, Alternative A is still preferred.
Rating Score Rating Score Rating Score Rating Score
Annual Mat‘l Handling Cost 20 10 200 7140 5100 240
Construction Cost 25 8200 4100 10 250 9225
Ease of Expansion 15 7105 8120 10 150 9135
Employee’s Preference 20 6120 8160 7140 10 200
Rail Siding Access 20 10 200 6120 5100 7140
Totals 100 825 640 740 740
C
D
Weight
A
B
Rating Score Rating Score Rating Score Rating Score
Annual Mat‘l Handling Cost 15 10 150 7105 575 230
Construction Cost 25 8200 4100 10 250 9225
Ease of Expansion 15 7105 8120 10 150 9135
Employee’s Preference 30 6180 8240 7210 10 300
Rail Siding Access 15 10 150 690 575 7105
Totals 100 785 655 760 795
Weight
A
B
C
D
Rating Score Rating Score Rating Score Rating Score
Annual Mat‘l Handling Cost 20 8160 10 200 240 5100
Construction Cost 25 8200 4100 9225 10 250
Ease of Expansion 15 7105 8120 10 150 9135
Employee’s Preference 20 10 200 8160 7140 6120
Rail Siding Access 20 10 200 6120 5100 8160
Totals 100 865 700 655 765
Weight
A
B
C
D
Rating Score Rating Score Rating Score Rating Score
Annual Mat‘l Handling Cost 15 8120 10 150 230 575
Construction Cost 25 8200 4100 9225 10 250
Ease of Expansion 15 7105 8120 10 150 9135
Employee’s Preference 30 10 300 8240 7210 6180
Rail Siding Access 15 10 150 690 575 8120
Totals 100 875 700 690 760
Weight
A
B
C
D
11.12 From the table below, Alternative A would be preferred.
11.13 From the table below, Alternative A would be preferred.
11.14 The weighted factor comparison method is easy to use. Sensitivity analyses can be
SECTION 11.2.4
11.15 From the problem statement the WACC = 9%. Using the EASTMAN hurdle rate
calculation method we have the following:
I. No, 0%
Rating Score Rating Score Rating Score Rating Score
Annual Mat‘l Handling Cost 15 7105 10 150 690 575
Construction Cost 25 8200 7175 9225 10 250
Ease of Expansion 15 7105 8120 10 150 9135
Employee’s Preference 30 10 300 8240 7210 9270
Rail Siding Access 15 10 150 690 7105 8120
Totals 100 860 775 780 850
Weight
A
B
C
D
Rating Score Rating Score Rating Score Rating Score
Annual Mat‘l Handling Cost 20 7140 10 200 6120 5100
Construction Cost 25 8200 7175 9225 10 250
Ease of Expansion 15 7105 8120 10 150 9135
Employee’s Preference 20 10 200 8160 7140 9180
Rail Siding Access 20 10 200 6120 7140 8160
Totals 100 845 775 775 825
Weight
A
B
C
D
to 0.5%. Thus, the discount rate decreases from 17.4% to 15.9%.
11.17 Case 1: Part VIII of the calculation changes from 3% to 4%, thus the discount rate
11.18a From the table below, Alternative B is preferred.
Year A B
∆(B–A) Net CF(B–A) Cum NPV
0 –$250,000 –$1,000,000 –$750,000 –$750,000 –$750,000
1 –$600,000 –$300,000 $300,000 –$450,000 –$477,272.73
2 –$600,000 –$300,000 $300,000 –$150,000 –$229,338.84
3 –$600,000 –$300,000 $300,000 $150,000 –$3,944.40
4 –$600,000 –$300,000 $300,000 $450,000 $200,959.63
5 –$600,000 –$300,000 $300,000 $750,000 $387,236.03
6 –$600,000 –$300,000 $300,000 $1,050,000 $556,578.21
7 –$600,000 –$300,000 $300,000 $1,350,000 $710,525.65
8 –$600,000 –$300,000 $300,000 $1,650,000 $850,477.86
9 –$600,000 –$300,000 $300,000 $1,950,000 $977,707.14
10 –$600,000 –$300,000 $300,000 $2,250,000 $1,093,370.13
NPV –$3,936,740.26 –$2,843,370.13 $1,093,370.13
AW –$640,686.35 –$462,745.39 $177,940.95
FW –$10,210,890.38 –$7,374,969.84 $2,835,920.54
IRR 38.45%
PBP 3 years
DPBP 4 years
Answers to Problems at the End of Chapter 11 11-7
11.20a This problem is asking for the condition P(NPVB(10%) ≥ NPVA(10%)), which is
equivalent to P(NPVB-A(10%) ≥ 0). To solve we use the following relationships:
E NPV = ckE(Fk)
N
k=0 and Var NPV = ck2Var(Fk)
N
k=0 where ck is the interest
11.20b The results of the Monte Carlo simulation are illustrated in the following histogram. The
simulation was run with 1,000 iterations and a fixed random number seed.
11.21a The sensitivity analysis performed may depend on the student. The following is a plot of
($4.00)
($2.00)
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
–50% 0% 50%
NPV of Investment (in Millions)
Percent Change in Estimated Value
Investment Cost
Annual Savings
11.21b This problem is asking for the condition P(NPV (10%) ≥ 0). To solve we use the
N
N
The analysis is illustrated in the following table:
Year (k)
E(Fk)SD (P/F, 10%, k)2V(Fk)
0 –$8,000,000
1$1,750,000 $250,000 0.8264 $51,652,892,561.98
2$1,750,000 $250,000 0.6830 $42,688,340,960.32
3$1,750,000 $250,000 0.5645 $35,279,620,628.36
4$1,750,000 $250,000 0.4665 $29,156,711,263.11
5$1,750,000 $250,000 0.3855 $24,096,455,589.35
6$1,750,000 $250,000 0.3186 $19,914,426,106.90
7$1,750,000 $250,000 0.2633 $16,458,203,394.13
8$1,750,000 $250,000 0.2176 $13,601,820,986.88
9$1,750,000 $250,000 0.1799 $11,241,174,369.33
10 $2,500,000 $250,000 0.1486 $9,290,226,751.51
E(NPV) $3,042,149.90
V(NPV) $253,379,872,611.86
SD(NPV)
$503,368.53
z –6.0436
11.21c The results of the Monte Carlo simulation are illustrated in the following histogram. The
simulation was run with 1,000 iterations and a fixed random number seed.