Reference no: EM131997870

A company is producing a? high-volume item that sells for $0.70 per unit. The variable production cost is $0.25 per unit. The company is able to produce and sell 9,000,000items per year when operating at full capacity.

The critical attribute for this product is weight. The target value for weight is 1,000 grams, and the specification limits are set aT plus or minus ±55 grams. The filling machine used to dispense the product is capable of weights following a normal distribution with an average (μ?) of 1,000 grams and a standard deviation (σ?) of 55 grams. Because of the large standard deviation? (with respect to the specification? limits), 22.01?% of all units produced are not within the specification limits.? (They either weigh less than 945 grams or more than 1,055 grams.) This means that 1,980,900 out of 9,000,000 units produced are nonconforming and cannot be sold without being reworked.

Assume that nonconforming units can be reworked to specification at an additional fixed cost of $0.15

per unit. Reworked units can be sold for ?$0.70 per unit. It has been estimated that the demand for this product will remain at 9,000,000 units per year for the next five years.

To improve the quality of this? product, the company is considering the purchase of a new filling machine. The new machine will be capable of dispensing the product with weights following a normal distribution with μ=1,000 grams and σ=15 grams. As a? result, the percent of nonconforming units will be reduced to 1.26% of production. The new machine will cost $650,000 and will last for at least five years. At the end of five? years, this machine can be sold for $100,000.

Compute the? IRR, simple payback? period, and discounted payback period of the proposed investment. Please solve using excel functions and not the compound interest table please.