Lion lighting, Inc. is considering a new light bulb manufacturing machine that would cost $100,000 to buy and an additional $5000 to install. Lion lighting would have to maintain a parts inventory as net working capital during the life of the machine that would be sold at the end of the machine’s life. The machine would be depreciated to $15000 over its 3-year life and then sold for $45000. The machine is expected to save $35000, $45000 and $55000 in year 1,2and 3, respectively. If lion lighting has a 30% marginal tax rate, what are the initial cash flow and each year’s cash flow from the project?

Solution: #1032

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Introduction:

This task requires candidates to prepare a program evaluation and review technique (PERT) chart and apply critical path method (CPM) techniques.

Given:

Company A is installing a Web-based customer-feedback system to meet customer needs for quick response when rolling out new products. A new product line is rolling out in 48 weeks and the customer-feedback system must be installed and running in time for the new product launch. Table 1.1 in the attached Excel spreadsheet “PERT/CPM Analysis Table” shows three estimates of the time it will take Company A to complete each of the project activities in the customer feedback system project (optimistic, probable, pessimistic).Company B is installing a similar feedback system to accompany a new product line and originally had the same time line as Company A.

Company B just announced that its new product line is ahead of schedule and will be launched in 44 weeks instead of the initially projected 48 weeks. Because the Web-based customer feedback system must be installed and running in time for the revised date of the product launch, something must be done to shorten implementation time required for the customer-feedback system project. Refer to Table 1.2 in the attached Excel spreadsheet “PERT/CPM Analysis Tables” that lists the expected time it will take to complete the activities if shortened as much as possible (crash time), the cost to complete the activity using normal resources (normal cost), and the cost of completing the activity on an accelerated basis (crash cost).

Task: