An Increased Number of Companies Are Investing in Advanced Manufacturing

question 85

Essay

An increased number of companies are investing in advanced manufacturing systems.
Required:
A.Many proposed advanced manufacturing systems have a negative net present value when discounted-cash-flow analysis is used.Explain several causes of this situation.
A.Negative net present values may arise from several factors: the investments are very costly;the hurdle rate may be very high to compensate for project risk;the time horizon may be too short;and a number of benefits associated with the project may have been excluded from the analysis because of related quantification problems.
B.Greater flexibility in the manufacturing process and improvements in product quality are very difficult to quantify.As a result,these items may be excluded from a discounted-cash-flow analysis,decreasing an investment's attractiveness.
B.Two major benefits of advanced systems are greater flexibility in the manufacturing process and improvements in product quality.Explain how these benefits can create problems when performing discounted-cash-flow analysis.

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Definitions:

Introns

Non-coding sequences of DNA within a gene that are removed by RNA splicing during the maturation of the final RNA product.

Exons

Regions of a gene that code for proteins and are expressed in the RNA.

Transposons

DNA sequences that can change their position within a genome, sometimes causing or reversing mutations and altering the cell's genetic identity.

Transcription

The process by which the genetic information in a strand of DNA is copied into a new molecule of messenger RNA (mRNA).