## Question

2) The design team was charged with a Cpk = 1.2 and Nominal of 10 mm for a designed part. They measured 30 parts from one of their vendors, and found the average was 11 mm and the standards deviation was 1. What should they set their specifications to? Specifications = 10 +/- __________________________________________

3) Compare the two scenarios for acquiring a machine for a project 30 years expected operations, at a company with an internal rate of return of i=18%. Which scenario is better? Please round to the nearest $

Scenario 1: Buy an initial small machine at $12,000, it cost $24,000 to run for the first 15 years, buy a second larger machine at $32,000 and run it for 15 years at a cost of $4,000 per year. There is no salvage value at the end of service for either machine.

Scenario 2: Buy a large machine for $35,000 and run it for 30 years at a cost of $1,000 per year. At the end of 30 years, the machine is assumed to have a salvage value of $10,000

4) If a sensitivity analysis was performed on the 2nd scenario above by varying the purchase price, and the internal rate of return (that is 2 factors) by +/- 20% each, how many PV calculations you have to make, and how many point you will plot for the sensitivity analysis (doing the analysis is not required) just display the numbers

Number of PV calculations?

Number of points to plot on the sensitivity curve?

Plot the sensitivity analysis and show the plot of the two factor changes +/- 20% each and the base calculations.

5) There are two electric motors that can provide 100 hp. aLPHA motor can be purchased at $1,250 and has and efficiency of 74% an estimated life of 10 years, and estimated maintenance costs of $50 per year. Beta motor will cost $1,600 and has efficiency of 92% life of 10 years and maintenance cost $25 per year. Assume that the company internal rate of return is 15%. Perform a break even analysis to find out at what hours of operations the two motor costs are the same. Assume an electricity rate of $0.05 per kilowatt hour. Plot your results.

6) A project cost of $10,000 will produce annual revenues of $2,000 for 5 years. If the company has a minimum project ROI of 10%, does this project qualify for development?

a- with no depreciation, taxes and no book value remaining after 5 years

b- with no depreciation, taxes and with $1500 book value remaining after 5 years

c- with straight line depreciation, 33% tax rate and no book value remaining after 5 years

d- with straight line depreciation, 33% tax rate and $1500 book value remaining after 5 years

## Solution Preview

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Answer 1:A Cp of 1 indicates condition of Three Sigma and the reject rate would be 0.3% i.e. 3000 parts would be rejected in 1 million.

Answer 2:

A Cpk value of 1.2 means that the sigma value for the process is 3.6.

Given that

Mean 10

Sample size 30

Standard deviation 1

Specification = Mean +/- Sigma Value * (Standard deviation/Sqrt(Sample size))

Thus value is 0,657...