Reference no: EM131923469

Question: In the 2000s, Fiat and Chrysler Companies both started developing their business.

In the decade of 2006 to 2016, Fiat purchased Chrysler for a combination cash and stock deal worth more than $5 billion and integrated the product lines.

Engineers made many cost estimates as they determined the needs of consumers and the combined company's ability to technologically and safely produce and market new products.

At this point only cost estimates have been addressed-no revenues or profits.

Assume that the major cost estimates below have been made based on a 6-month study about two new products that could have a 10-year life span for the company.

Use LCC (Life Cycle Cost Analysis) analysis at the industry MARR (Minimum Acceptable Rate of Return) of 10% to determine the size of the commitment in AW terms.

(Time is indicated in product-years. Since all estimates are for costs, they are not preceded by a minus sign.)

Consumer habit study (year 0)                                             $ 0.9 million

Preliminary product and equipment design (year 1)                   $ 2.00 million

Detailed product and equipment designs,
test marketing, and Equipment acquisition (years 1,2)              $8 million each year

Current equipment upgrades (year 2)                                    $ 2 million

Annual equipment operating cost (AOC) (years 1-10)               $0.4 million

Marketing, (years 1-10)                                                      $ 5 million (year 1) and -0.3 million per year thereafter

Human resources, 100 new employees for 2000 hours
per year (years 3-10)                                                         $20 per hour (year 3) + 8% per year

Phase out and disposal (years 9, 10)                                     $1 million each year

(Note: Write the formula and /or notation you are using before putting the numbers in. Show your work)