SUPPLEMENT 7
SOLVED PROBLEM S7.5
CAPACITY PLANNING
353 ..
T. SmunL Manurac turing Co rp. has th e process di splayed
c) Jf the firm ope rates 8 ho urs pe r day, 22 d :'IY:> per monlh , whitl
is the m o nthly capa c it y orlhe manuracturing process?
be low. Th e drilling operati on occu rs separ a te ly fr om an d
d) S uppose th ,lt a seco nd drilljng Inuch ine is <tdded. and it wkes
simultaneously with the s(J w in g and :o;a ndin g operatio ns. Th e
prod ucl on ly needs to go throu g h o ne o f t he three assemb ly
openHi o n~ (the assem bl y ope rations are " parallel").
<I S
the origin al dri llin g machin e . W ha t is th e
new bottleneck li me of the system?
e) Suppose thaI a second d rilling mac hin e j:-. Zl dded, tlnd il takes
the Same li me as th e o riginal drilling mac:..:hine. What. is lhe
a) Which opera tio n is the bOl.tleneck?
b) What. j~ Ihe throughpu t time fo r the overall sys tem?
1-1
the same time
Sawing
'--------'
Sanding
15 min!unit
15 min/unil
new th roughput time?
/ l
Welding
25 minlunit
Drilling
Assembly
78 min/unit
·---1
'''''1
Assembly
78 min/unit
Assembly
27 min/unit
78 min/unit
SOLUTION
a) Th e time fo r {/.\".\·(·mhly is 78 m inu tes!3 ope raLO rs = 26 minutes per lIn it, so th e s ta li on that takes (he longes t tim e, he nce the
bO ll ie nee k, is dri!ling. at 27 minutes.
b) System (hroughput time is the maximum o f(l 5 + 15 + 25 + 78), (27 + 25 + 78) = ma x.imum o r (133, 130) = lJ3 minut e s
; e) Mo nthl y capacit y = (60 minutes)(8 ho urs){22 da ys) j 27 m inutes per unit = 10,5 60 minul es per m onl h/27 minutes pe r unit =
39 1.1Iu nits j m o nth.
d) The b o llie nec k shifts Lo A.,·semhly, with a ti me or26 minutes per unit.
e) Red undancy does not affect th roughput time . is sti ll 133 minutes.
rl
Problems
Nole:
Px m eans t he problem may be solved wilh POM lor Windows and/or Excel OM .
· · S7. 1
Southea ste rn O klahom a State University 's bu s i­
ness program ha s the facilities and rac ult y to handl e a n e nroll­
ment of 2,000 new s lu dl~llts per semes ter. However , in <In erro rt
to limit cla ss s ize s to a " reasonable" level (under 200. genera ll y),
So utheas te rn 's dean, Holl y Lut ze, pla ced a ceiling o n e nrollm ent
of 1,500 new student s. A lth ough th e re wa s a mpl e de mand for
business courses last seme:'>ler. connicti ng schedules a ll owed o nl y
1,450 new student s to take busines s c o urse s. What are the ut iliza ­
tion and efficie ncy of thi s system?
• 57.2
A m y X ia 's plant was designed to produce 7,000 i1all1­
mers pe r d a y but is limit ed to making 6.000 ha mmers per Ja y
beca use o f the time need ed 10 c ha nge equ ipme nl be tween styles o f
ha mme rs. Wh a t is the u ti lizatio n?
• 57.6
Fo r lh e past month , the p] ': IJlI in Proble m S7.2. which
ha s all e rrect ive capacity o r 6,500. has ma de o nl y 4 ,500 hml1mers
per da y because or ma te ria l delay. employe!.: a bsences. and o the r
problems . What is iLS e ffi ciency?
• 57.7
ThedTcctive capac it y <.I nd e ffi ciency ror the nex t quar­
ter at M MU Mfg. in Waco. Tcx<Js. for each or three departmen ts
arc show n :
D~PARTMENT
D ~l g n
Fabrication
Finishing
EffECTIVE
~PA(ITY
93.600
RE(~NT EFfI(I~NCY
.95
\56.000
1.03
61.400
1.05
• 57.3
If <J plant h~l s an efrecti vc capacity or 6.500 a nd an
efli ciellcy 0 1" 88'%. w hilt i ~ the <letllal ( planned) ou tp ut ?
• 57.4
A pla nt has all e tTeclive capacit y of900 units per day a nd
proouces 800 lin its per da y with irs producll11ix; Wh,l t is its efTiciency?
Compute the expected producLion for next qu a rt er fo r eac h
depart ment.
• 57.5
M<lle ri<ll delays h ave ro utinel y limited produ c ti oll
of household s in ks to 400 nnils pe r da y. If the pl<:ln t e ffi c iency is
80%. what is the efJ'l..:clive capacit y?
·· 57.8
Unde r jdeal co nd itions, a ser vice ba y at a Fast Lube
ca n se rve 6 cars pe r hou r . The efrt~C li ve ca pacit y a nd efficiency
o r a F a st Lu be se r v ice bay are known {O be 5.5 and 0.880,
354
PART 2
DES IGNING OPERATION S
respective ly Wh "ll is I he min imu m numbe r of serv ice b<'lys F a st
Lu be needs to achieve <In antic ipated se rvici ng of 200 ( ars pe r
8- hour day?
·· 57 .9
A wo rk cell at Chris Elli s Commercial Laundry has
a wo rk statio n with two machines, <.1nd eac h un it produced al the
by both o rth e mac hi nes. (The same
!'i ta li o n need s to be proce::,scu
unil ca nn o l be worked on by both machin es simultaneously.)
Ea <: h ma chine has (\ production Ca p<:l CilY or 4 un its per ho ur .
What is the Ih ro li ghplil lime o r the work ccl1?
oS7.10
A pr oductio n lin e at V. J. Sugumara n's machine
sho p ba s three stati o ns. Th e fir st sta ti o n can process ;l unit in
10 minut es. The seco nd Slat ion ha s two identical mllchin cs, each
or whi ch e,lll pr ocess;1 unit in 12 minutes. (E<Jcll unit o nl y net:!ds
to be processed 0 11 olle of th e two machine s. ) The th ird sta ti oJ1
can process a unit in 8 minute s. Which stali o n is th e bOlll eneck
stalion?
~ ~
The three-st,Hi o n v.or k ceJI illustrated in Figure S7 .7
has a product that mu st go thr ough Olle of the two machine,c; a t
statI o n I (t hey are panillcl) befo re proceeding 10 st<lIio n 2.
57.11
d) rf the fi rm operates 8 ho urs per day . 6 da ys per wee k, wha t is
th e weekl y ca pa cit y or thi s work cel l?
- 57.13
Klasscn To y Co mpilll Y, Inc .. assembles two parts
(pa rts t and 2): Part I is first p r o (c ~ " cd ,II wo rk sta tion A ror
15 mi nutes per unit <:Ind th en proce <;sed at workstat ion B for 10
minu tes per unil. p,w 2 is simultaneo usl y processed a t worksta­
ti on C fo r 20 minutes per unil. Wo rk .:; tal ions B ,",nd C feed the
parts to an asse mbl er a l worksla ri o n D. where the two parts are
asscmbled. Th e time at wo rk station 0 i:-; I S mi nutes.
<1) What is the bOLtleneck ofthb process?
b) What is th e ho urly capacity of the process?
Station 1
Mactiine- A
20 min/unit
Station 1
MachineS
Station 2
1---411" 1 Station 3
Capacity: 5 unitslhr
Capacit y; 12 unitslhr
Machine B
Capacity: 20 unitS/hr
Figure
a)
b)
c)
d)
Stalion3
8 min/unit
57.S
The Pullm an Mfg., Inc. th ree-statio n wor k cell iJlus­
Ira red in Figure S7.8 has two ll1 a c hine ~ at sta t.i.o n I in parallel.
(The product need s to go thr ough ollly o ne o f the two machines
befo re pJo(.;ccding to st<llioll 2.) T he m;;:u1a ge r, Ms. Hart ley, has
<lsked you to evaluate th e syslem If !! hc add s a para llel machine at
stati on 2.
a) What is the thro ughput time o r th e new work <.:el l?
b) What is the bottlencc k tim e o f the Ilew work ce ll?
c) II' the firm operat es 8 ho u]"s per d.1Y. 6 da ys per wee k, whal is
the weekl y eap::H.:il y o r thi s wo rk ce ll?
d) How did the Hddition o r Ih e seco n<.l rn <lchine a t work stati on 2
arreCl.the pcrfo rmance oflhe work c.:cll fro m Pr oblem S7. 12?
--57_14
Capacit y: 20 unitslhr
Station .,
12 mln/un1t
~L
20 min/unit
Figure
StjlUon 1
Machine A
Slatio02
57.7
Wh at is the botllcnce k time orthe system'!
Wh i:l t is the bottleneck slalion of thi s work cell?
What is the thro ughput time?
If the lirm o penHcs 10 hou rs per d ay. 5 da ys per wee k, WhM is
the wcekl y capacit y of thi s work ce ll?
57 .12 T he three-sla tioll wo rk cell at Pullman Mfg., [nco is
illustrate<.l iu Figure S7.S. II ha s two Illachines at station I in par­
allel (i .e.. the product needs to go thro ugh o nl y one or the two
machines berorc pr oceed ing to !'tation 2).
!J) What is the th ro ughput timco rthi s work cell?
b) What is t.h e bOlll cl1cck lime of this wo rk ce ll'?
c) What is the bOllicn eck stati on?
Sawing
6 units/hr
~I
Sanding
• c 57.16
A prodllction proces.'l at Ke nnt: th Da y Manufacturing
is sho wn in Figure S7.9. The drilling openltion occur s separately
fr om , and simultaneous ly with . the s~l wi n g and s•.Inding o pera­
Li ons. A product needs 10 go l.hrough onl y one o r th e three assembly
operiltio ns (lbe operati o ll s are in p<Jr.tl fel) .
I,
/,1
Assembly
6 unilslhr
'.
J/
//
Drilling
· 57.15
Smith son Cuttin g is o penin g a new lin c o f scissors for
superma rk et di stribu tio n. It estim ates its I'xed cosLto be $500.00
and its vari<Jb le coslto be $0.50 per unil. Selling price is ex pected
to average $0.75 per unit.
a) Wh<l l is Smith so n's brea k-even point in uni ts?
b) What is the break-even point in <.I o ll ars'! ~
~//
J
"
Welding
2 unils!hr
f--I
0.7 unils/hr
Assembly
0 .7 unilslhr
Assembly
2.4 unlls/hr
0 .7 unitslhr
Figure
57.9
SUPPLEMENT 7
a)
b)
c)
d)
Which o pera tio n is the bottlenec k?
Wh ,H is the bo ttle neck time'!
What is the throLlghpullime or the ove ra ll system'?
If the Ii rlll o pera tcs 8 hOlll's pe r da y. 20 Ja ys per month . wh<l t
is the m o nthl y capClc ily o r thc manuracllJring process?
M <lfkland M anu raclLlring intcnds to in crease capacity
by overcomin g <l bo tllenv'k opc nltio n by adding new equipme nt.
Two vend o rs ha ve pre sC';<:d pro posa ls. The fi xed cos ts ro r pro­
posal A a rc $50,000. Cl nd ro r proposal B. $70.000. The va ri a ble
cost fo r A is $ 12.00, and for B. $ 10.00 , T he reve nue generat ed by
each IIn it is $20.00.
a) Wha t is the break-eve n po int in un its ror pro p05<l1 A?
b) What is the brea k-even poi nt in ullit s ror pro posa l B? Px
• 57.17
Given Llle data in Pro blelll S7 .17, a\ what volume; (units)
OCOlliput would rhe two alt ern at ives yield thc sa me pro ["it? Px'
• S7.18
· S7.19
Using the da ta in Pro blem 57. 17:
a) What is the break-eve n po int in do llar s ro r pro po sal A ir yo u
aud $ 10,000 in sta llation to th e fi xed cost?
b) What is t he break-even point in doll,lrs ror pro posa l B ir you
add $10,000 in stallation to Ihe Iixe d cost? P.x"
Jane ll e H -.:i nke, the own e r o r lia ' Pe ppas! , is cn ll :-. id ­
erin g Ii new oven in whic h \0 bak e th e firm 's signatu re di sh,
vegeHHi a n pi zza, O ve n t ype A can ha nd le 20 pizzas an ho ur.
The ri )(ed cos ts a s sociat (.~ d wiLh ove n A are $20 ,000 and th e vari ­
able co sts are $2.00 per pi ua , O ve n B i::; lar ge r ;lnd ca n handJe
40 pizzas a n ho ur. The fi xed cos ts as sociated with oven Bare
$30 ,000 a nd lhe variable costs a re $ 1.25 pe r pi zza. T he pi'lZ3 s
sen ro r $ 14 each.
a) What is tbe brea k-eve n point ror ea,c h ove n'?
b) Irt he o wnerexpecl5 to sc11 9,000 pizzas. whi ch o ven sho uld she
purcha se?
c) Ir th e o wne r ex pects 10 sc ll 12,000 pizza s, which oven should
she purchJ se?
d) At what vo lum e should Ja ne ll e switch o vens? Pt(
• • S7.20
variabl e cos t or ea c h copy so ld at $ .0 1. YOll expect the se lli ng
price to ilVer(l ge $.05.
a) What, is t he bre,l k-even point in do ll a rs'!
b) WIUH is the brea k-even poilll in units? PJc
An elec tr o nics fir m is curr ent ly ma nuraclllrin g an
it em tha t has a vari a ble cos t or $.50 per unit and a selling price o r
$ 1.00 per unit. Fi xed cos ts (lre $[4,000. C urrent volume is :'\0,000
un it s. Th e firm ca n substantially impro ve th ~ prOduct qU<J lity by
Hdding a new piece or equipme nt al an auditi o n,,1 fi xcd cosL o r
$6,000. V<:tri~b l e cos t woul d in crease Lo $.60, but vo lume should
jump to 50,000 units due to a hi gh e r-qualit y produc t. Should the
compan y buy th e new eq uipme nt,; P)c
··57.23
The electro njos finn in Pro blem S7 .23 is no\.... conside r­
ing th e new equ ipment and increasin g the se lling price to $ 1. 10 per
unit. With the hi gher-qualit y product. th e new volume is expected
to be 45.000 unit s. Under the)e circ umsLances, 5ho uld the com pany
purch ase Ihe m;w equipment and increase th e selling price? PJrc
'·57.24
Za n Azletl a nd Ange la Zcsige r ha ve j oincd fo rces
to start A&Z Lclluce Products. a processo r o f pack aged shred­
ded Ict.tuce ro r inSlilutio nal usc. Za n h.l$ yea r:) o r ro od proccss ing
expe rience , and Ange la ha s ex te nsive (';o mm er!-=ia l rood pre pa­
ration expe rie nce. T he pro<.:ess wi ll cons ist o r o p.e nin g era les o r
lettu ce and thell :o;o rtin g. wa shin g, slicing, prese rving, a nd fin all y
packaging th e prepared leu ucc. T ogether , with help:fr o m vend o rs,
they think th ey ca n adequ<1tely eS Lim a te oellland , li xed costs. rev­
enues, an d vari able cos t per 5-pound bag o r lettuce. Th ey lhink a
large ly Jl1<1nual process wi ll have mo nthl y Iixecl costs o f $37,500
and va ri a ble costs of $ 1.75 per bag. A mo re mecha ni zed proccss
will ha ve lixed cos ts or $75,000 per month wilh var ia ble cost s o r
$1.25 per 5-po und bag. T hey expect to sell l he shredded lelluce
Cor $2.50 per 5-po und bag.
a) What is th e brea k-even quantit y ro r the manual process?
b) Wha t is th c revenue a t the break -eve n q ua ntity fo r the manual
process?
c) Wh a t is thc break-e ve n q ua ntity ro r th e mc(.;h ';IIlized process?
d) Wh a t is the revenu e al the break -even quanti ty ror the mecha­
ni zed proces s?
e) Whal is the month ly pro fit o r loss o r the num ua! process ir they
ex pect to se ll 60,000 bags o f Ic ttuce per month?
f) Wha t is th e mo nt hly profit or loss of th e mechanized process if
th ey expec t 10 sell 60,000 bags o r Icullce per month?
g) At wha t quantity wo uld Z a n a nd Angela be indifTerent to th e
process ~e1ect ed?
h) O ve r wha t range o r de m,lnd would Ihe manual process be
preferred o ver the mec hani zed process? O ve r what range o r
demand wo uld the meclumized process be prere rred o ver the
manual p!"oce~~?PJc
. •. • 57.25
A s a pros pecti ve o wncr oj' <I club know n a s the Red
Rose, YO ll are interested in t1etermin in g the volume or sa les dol­
lars necessary ror the co min g yea r to reach [he break -even po int.
You ha ve dccided to break down the :-:.a les ro r th e clu b into fo ur
ca t egorie ~ , th e fir st c(l tegory be in g bee r. Yo ur es timate of the
beer sale s is ch a t :'\0,000 drink s wi ll be ,,('ned . Th e sellin g price ror
eac h unit will a ve ra ge $ 1,50 ; the cos1 i~ S.7S. The seco nd major
c:,:i;ltcgo ry is meal s, whi ch you expcct to be 10,000 un its with an
av e ra ge price or S I 0.00 and <l cost or $5.00, The third maj o r c.a t­
ego !"y is desser ts an d wine, o r which yo u a lso ex pe<..:1 to sell 10,000
uni ts, but wit h an a verage pri ce o f $2.50 per llnit so ld and a cos l
o r $ 1.00 per unit. The fin(l l ca tego ry is lu nch es and inex pensive
s<J nd wich es, whic h yuu expect [ 0 to ta l 20.000 un its at a n average
• • •• S7.26
· ·S7.21
b)
BF.P~ ;
G ivcn lh e roll o wing data . calculat e
and c) the profit at 100 ,000 unit s:
p ~ $8/ un il
V = $4 / uni[
F
a) BEP ,;
= $50,000 P)(
You are co nsid e ring open in g a co py ser vice in t he
student uni o n. You estimat e yo ur Iixed cos t at $ 15,000 and the
"S7.22
CAPAC IT Y PLANNING 355
356
PART 2
D ESIG NING OPE RATI O NS
price 0($6.25 wit h <J food cos t of $3.25 . Your fi xed cost (i.e. rent,
ut ili lies, and so a ll ) is $ 1,ROO per month plus $2,000 per mon th fo r
e nl crtCl inme ll l.
a) Wh at is your break-even po int in dolla rs per m o nth?
b) \v h.. , is tJ,e expec ted num be r of meCiIs each day iryo u <I re open
30 dil Y,:) a month?
• • • 57 .27 A5 mu nagc r of the SL Cloud T hea tre Compa ny. you
have d ecided t hil [ co ncess io n sa les will suppo rt themse lves. The
foll owi ng (able pro vides Ihe inform ati on you ha ve bee n ahl e La
pll ll oge th cr thu s ra r:
ITEM
Soft dri nk
IEllING PRICE
VARIABLE (OIT
11.00
$ 65
"" OF REVENUE
25
Wine
1.75
.95
25
Coffee
1.00
.30
30
( andy
1.00
.30
20
L<l s t y eur'~ m a n age r, Ji m Free lan d , has a dvised you to be
s ure to adO 100/., of v(l riah le cost <IS a wa s te a ll OWnl1 ce fo r .II !
ca tego ri e.s.
You es tim ale labor cos! to be $250.00 (5 booths wit h 2 people
each). Even if no th ing is so ld , your labor cost will be $250.00, so you
dec id e \0 consider th is a lixcd cos t. l300th ren ta l, which is a co ntraC­
tual COS t at $50.00 fo r ('(fch boo th per ni ght, i;;\ a lso a fi Ked cost.
el ) What is (h e b rea k-c ven vo lu me per eve nin g perro rm anee?
b) H ow mILc h win e wo uld yo u expec t to seH ea eh eve nin g <.I e thc
brea k-even po int ?
James Lawso n's Bed a nd Breakfast, in a s m a l1 hi s­
LO rie M iss iss ippi 10w n , 111 ll St dceide how ( 0 subdi vide (rem ode l)
th e la rge ol d ho m e th a t will bccome its inn . The re <Ire three
alterna ti ves: Op ti o n A wo uld m od e rni ze all ba th s and combinc
roo ms. lea vin g the inn with fo ur su ites , eac h s ui ta ble ror two to
four ad ult s. Opl io n B wo uld m ode rnize only thc second n oor ; thc
rcs ult s wo uld be six s uit cs, fo ur fo r two 10 four adult s, two fo r
two ad ults on ly. O ption C (the sta tu s qu o optio n) le.wcs all w<.l ll s
in lacl. In lhi s case, t here <lrc e igh t rooms a vailab le, but onl y two
a re s uit<l ble fo r fo ur adu lt s, an d rour rooms will not ha ve p rivate
ba ths. Below ~Lr e t he dewils of prolit a nd d ema nd p<ltlern s th al
wi ll acco m pa n y e,le h opl io n:
"' 57 ,28
• "_,... , ANNUAl. PROFIr UNDER VARIOUS
,: i
DEMAND PA ITER/IS
ALHRNATIVEI
HIGH~ ,
AVERAGE
A (modernize all)
190,000
,
115,000
.5
180,000
110,000
.6
( (status quo)
160,000
.J
155,000
.7
W hich o pti o n has the hi ghest expcc ted m o netary value? P
~· S7 . 29
Wha t is th e ne t present va lue of a n in vestme nt that
$75.000 a nd has a ::>l:llvage val ue o f $4 5,000'l Th e anu ua l
p rofit fro m th e in ves tment i:s $ 15,000 eaeh yea r fo r 5 ye<l rs. T he
cost of c('pira l al th is ris k level i ~ 12'Y. ,. p)
(:05 Ls
or
• ·· - S7 _31 As operatio ns ma nage r of Ho lz F u rn it ure , you mu st
mclke a d ecision a bo ut add in g a line of rus tic furnilu L'l! . In di scuss­
ing the poss ibilities w ith your sa les InamLge r, Steve G il bert, yOll
u eeide that there will de finit ely be a m..lrhl ..w d th at yo ur li rm
sho uld en te r th£l l m a rk et. H oweve r. bcca use rustic furn itu re has a
d iffere m fini sh than you r s ta nd ard o freri n g, you decide yo u need
a no th er process line. Th e re is no do u b t in you r m ind abo ut the
deci sio n, a nd yo u are s urc th a t yo u s ho uld have a second proeess.
But you d o ques ti o n how I~r ge to m ake iL A la rge p rocess li ne
is go in g {Q cost $400 ,000; a : >01 a ll process line w ill cost $300 .000.
The q ues ti o n , th erefo re. is th e dema nd fo r rus tic furniture. A ft er
e,'I; tens ive d isclL ssio n with M r. G il bert an d Ti m (relcLnd o r Ire land
Marke t Rcsearc h, Inc ., yo u d eterm ine th a t the bes t es tim,lI e you
ca n make is that there is a two· o ut -or·three c hance o f pro lit fro m
sales as lurge us 5600,000 a nd a one-o llt-of-lhrec c han ce a!) low as
$300,000.
W ith a large process line . you co u ld hand le the high fi gure of
$600,000. However , w ith a sma ll p r ()l:c~s li ne yOlL co uld nO l a nd
wou ld be fo rced to expa nd (al a cos t of $ 150.000). a fter wh ic h
time yOll r pro fi t fro m sa les wo uld be $ 500.000 ra the r than the
$600 ,000 beca use o f lh e lost time iLl expanui u g, ll.le process. [f yo u
d o no t ex pa nd the sln a ll p rocess, yOllr p ro rn fro m sal es wo uld be
held to $400,000. If yo u b ui ld a sma ll process <l nu lhe de ma nd is
low, yo u can handle a ll o r th e d em a nd .
Sho uld you o pen a large o r : > 1l1 l:l 11 p rtx:ess line?
~ 57 _ 32
The initi a l cos t of a n in ves tmen t i. . $65 ,00 0 a ndlhe
cos t of capit a l is 10%,. The re turn is $ 16 .000 pe r yea r lo r 8 yea rs.
W ha t is the net pr esent va lli c'! p\..
• ' 57.33 Tim Smunt has been as ked to eva lua te lwo mac hi nes.
A fte r some in vest iga li o n , he de te rm ines ih.H they have the costs
show n in the fo ll owi ng table. He is lo ld LO assumc thaL:
L The life o r each mllc hine is 3 years.
2. T he com pany thi nk s it kn ows how 10 mtl kc 12'},;, o n in vest­
ments no m ore risky th an this one.
3. La bor and maint ena nce a re pa id tl t the eild of lhe yea r.
MA(HINE. ,
Original cost
I
MA(HlllE B
110,000
110,000
labor per year
2,000
4,000
Maintenance per year
4,000
1,000
Salvage value
2,000
7.000
P
B (modernize 2nd)
.5
W ha t is the preselH value of $5 ,600 when t he int erest
nn e is 8% and lhe return
$5,600 w ill not be rece ived fo r 15
years? p,­
- S7.30
DCle rmine , via the p rese nt val ue me lh od, w hic h mach ine Tim
s ho uld recom mend .
• . ' · 57.34 Bo ld 's Gym , a hea lth c lub c hain , is co n s ide r ing
exp<l nding ili lo a new locat io n: th c in iti <l l inves tme nt wo uld be
S J milli o n in equi p men t, re novat io n . and ,1 6-year lease, and its
a llnual upkeep and ex penses would be $75.000 (pa id .-11 rhe begin ­
n ing o r the yea r). Il s p la nning ho ri zo n i ~ (, YCH rs ou t, an d at the
end , il can se ll the equ ipment for 550,000. Club ca pacity is 500
mem be rs who would pay a n a n nua l fcc of $600. Gold 's ex pe(:l s to
have no pro bl ems filling mem be rsh ip s lo ts. A ssume th ,,! the inler­
es l ra le is 10";:,. (See Table S7.1.)