As Frank Rondonelli, I will choose not to follow through with any of the three alternatives of increasing
freezer storage, hiring an additional employee or renting/ buying an additional mixing machine.
This decision has been made because increased demand will only be a concern for four months of the
entire year, making the investment only beneficial for those four months. Also, the 25% sales increase is
optimistic and while the investment is already losing money, this can worsen if sales do need to reach
the estimated percentage or if operations are not performed at theoretical capacity. Also, price is an
important factor in selling in bulk and with the additional investments, price will need to increase to stay
profitable.
Quantitatively, the numbers reveal the investment to not be profitable for the company. Over the project
life of ten years, the investment will result in a net present value of -$59 548, meaning the investment
will never be able to pay for itself. The demand is only 10800 per month and by purchasing a new mixing
machine, production will increase to over 30000, which is over 3 times what is required. This shows the
investment will not be used to its full potential and results in a waste of money.
I am choosing not to purchase or rent a mixing machine because it will not be used to its full potential
and will be a negative investment for the company. An additional employee is then not required because
the bottleneck will then be mixing which still does not meet demand. This also means additional freezer
storage is not required as no additional ice cream sandwiches are being made.
The risk in this decision is that the company misses out on potential benefits, however, based on the
numbers calculated, this is highly unlikely. To mitigate this, this year can be more focused on providing
quality to customers which can increase demand even further, making the investment more reasonable
in the future.