Barbour Electric Is Considering the Introduction of a New Product

question 25

Essay

Barbour Electric is considering the introduction of a new product.This product can be produced in one of several ways: (a)using the present assembly line at a cost of $25 per unit, (b)using the current assembly line after it has been overhauled (at a cost of $10,000)with a cost of $22 per unit; and (c)on an entirely new assembly line (costing $30,000)designed especially for the new product with a per unit cost of $20.Barbour is worried, however, about the impact of competition.If no competition occurs, they expect to sell 15,000 units the first year.With competition, the number of units sold is expected to drop to 9,000.At the moment, their best estimate is that there is a 40% chance of competition.They have decided to make their decision based on the first year sales.
(a)Develop the decision table (EMV).
(b)Develop a decision table (EOL).
(c)What should they do?

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Definitions:

Nonnegotiable

Pertaining to something that cannot be transferred or assigned from one party to another, such as a nonnegotiable instrument or document.

Negotiable Instrument

A written document guaranteeing the payment of a specific amount of money, either on demand or at a set time, with the payer named on the document.

Loan

A sum of money that is borrowed and is expected to be paid back with interest.

Prime Rate

The interest rate that commercial banks charge their most creditworthy customers, often used as a benchmark in lending rates.