Reference no: EM133381593

Case Study: Sam is the operations manager of a company that makes household appliances. For a new refrigerator that the company is introducing into the market, he estimates that the annual demand for the product during the current year (assumed to be year 1) is 100,000. Demand is expected to grow at a rate of 3% each year. If the company builds a plant that can produce a maximum of x units of the product each year (i.e., builds a capacity of x units), it will incur a one-time investment cost of $120x at the end of the current year. (Note that the capacity is the maximum quantity that the plant can produce. Assume that the company produces the smaller of demand and capacity each year.) The refrigerator sells for $850 per unit. Each unit of the refrigerator manufactured incurs a variable production cost of $600. Also, the company incurs a cost of $18 per year to maintain each unit of capacity. Finally, assume that the discount rate in this case is 8% and all the revenue and cost of each year are incurred at the end of that year.

Questions: You are required to do the following in excel
1. Define range names for all the inputs, apply them in formulas, and paste the range names on the worksheet.
2. Construct a model to calculate the net present value of the investment over 5 years for any given capacity level.
3. Use a one-way data table to analyze how the level of capacity built impacts the net present value of the total profit over the next 5 years. You should change the capacity from 100,000 to 120,000 in increments of 1,000.
4. Based on your result in question (3), create a scatter chart to demonstrate how the net present value changes with the capacity level from 100,000 to 120,000. Include a chart title and axes titles in the chart.
5. What capacity level maximizes the company's expected net present value of total profit over the upcoming 5 years? Highlight the largest NPV among the list of NPVs using conditional formatting.