Exhibit 11-2 Suppose We Want to Choose Capacity for a Plant That

question 18

Essay

Exhibit 11-2
Suppose we want to choose capacity for a plant that will produce a new drug. In particular, we want to choose the capacity that maximizes discounted expected profit over the next 10 years. Assume all cash flows occur at the end of the year. We have the following information:
∙Demand for the drug is expected to be normally distributed ˜ Normal (50,000, 12,000). Demand each year is an independent event.
∙A unit of capacity costs $16 to build in year 1.
∙The number of units produced will equal the demand, up to capacity limits.
∙The revenue per unit is $3.70 and the cost per unit is $0.20 (variable cost).
∙The maintenance cost per unit of capacity is $0.40 (fixed cost).
∙The discount rate is 10%.
-[Part 2] Refer to Exhibit 11-2.Use a RISKSIMTABLE to with the following values for capacity: 20,000,25,000,30,000,35,000,40,000.Which of these capacities produces the largest expected NPV

Recognize the importance of environmental factors and community infrastructure in disease prevention.

Understand the historical development of public health initiatives and their impact on community health.

Analyze the role of government and non-governmental organizations in the advancement of public health.

Identify key figures and their contributions to public health and nursing.

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Definitions:

EOQ Lot-Sizing

Economic Order Quantity (EOQ) is a formula used to determine the optimal quantity of stock to minimize the total costs of inventory management.

Setup Cost

The expenses incurred to prepare equipment or processes for manufacturing an order or batch of goods, typically involving preparation time and materials.

Inventory Holding Cost

Expenses related to storing unsold goods, including warehousing, security, insurance, and deterioration or obsolescence.

Product Structure Tree

A hierarchical representation of all the components and sub-components required to build a product, showing the relationship between the parts and the quantities needed.