Business decision making

| July 29, 2016

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Task 2:

 

Module LO4: Be able to use software generated information to make decisions in

organisations

 

4.1 – Use appropriate information processing tools

4.2 – Prepare a project plan for an activity and determine the critical path

4.3 – Use financial tools for decision making

.

To achieve a Pass Grade for Task 2 you are required to answer both of the following questions:

 

Question 1

 

Virgin Galactic,an aerospace company, are planning a commercial aerospace launch project to be undertaken in the 3 months’ time. Various activities have to take place before the launch can start, and these are shown in the table below:

Activities Preceding activities Duration in weeks

A Check controls – 3

B Check propellants A 5

C Check personnel A 3

D Assemble items C 1

E Move to launch pad B 3

F Run system tests B, D 4

G Check astronauts C 2

H Check ground stations G, F 3

I Final checkup E, H 1

Answer the following questions:

  1. Draw the network and show that it is not possible to start a launch within 12 weeks. Determine the earliest and latest event times. What are the critical activities and how much float does each non-critical activity have?
  2. It is possible to “crash” (reduce the duration of) certain activities at increased cost. These activities are shown in the table below:

Activity Normal Duration (Weeks) Crashed Duration (Weeks) Extra Costs Per Crashed Week (GBP)

A 3 2 2,000

B 5 4 5,000

C 3 1 1,000

G 2 1 2,000

H 3 2 1,500

 

  1. Bob Smith, the launch manager, suggests that only activity C needs to be crashed because this is the cheapest option and allows the greatest reduction in time to be made. Explain why this would not help the situation.
  2. It has been estimated that for every week over 13 weeks that this project takes, a loss of GBP 5,000 is made as a result of lost profits. Decide on the strategy that will minimise the sum of crashed costs and loss of profits.

 

Question 2

 

Quickprint LLC are about to replace some of its existing printing equipment. Two printing machine configurations have been designed by the production engineering department – M1 and M2. Each configuration involves significant capital outlay with estimated cash flows over the next five years as follows:

 

Estimated Cash Flows (in US$) Configuration M1 Configuration M2

Initial cost -210,000 -250,000

1 55,000 60,000

2 67,000 62,000

3 70,000 70,000

4 75,000 74,000

5 80,000 80,000

 

Assume that the machines have a residual value of zero and the company’s cost of capital is 15%.

 

Answer both the following questions:

 

(a) Calculate for both machine configurations:

(i) Net present value (NPV)

(ii) Internal rate of return (IRR).

 

(b) Evaluate the configurations using the calculated indicators and provide recommendations on

the machine configurations.

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2018DISC
Accounting for decision makers
Managerial economics

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