This test exam consists merely of computational questions, during the
actual exam interpretations could be asked as well.
The total number of points including the free points equal 95 for this test
exam; in the actual exam the total number of points will be 100.
Questions can be answered in English or Dutch. Explain every step in your
reasoning. The number of points for a correctly answered question is shown in front
of the question; 10 points are free.
1. A company that is introducing a new product has to choose between four
different manufacturing methods, referred to as methods A, B, C, and D.
Depending on the demand for the product (high, ...view middle of the document...
3. The B. Sharp Company has a rapidly growing product line that requires two
work centers, X and Y for manufacture. Work Center X has a current capacity
of 50,000 units per year, and Work Center Y is capable of 55,000 units per
year. In year 1, sales of the product line are expected to reach 53,000 units.
Growth is projected at an additional 3,000 units each year through year 3. Pretax profits are expected to be $60 per unit throughout the 3-year planning
period. The company considers to expand both Work Centers X and Y at the
end of year 0 to a capacity of 60,000 units per year, at a total cost for both
Work Centers of $500,000.
a) (5p) What are the pretax combined cash flows for years 0 through 3 that
are attainable to the expansion?
b) (5p) Ignoring tax, depreciation, and the time value of money, determine
how long it will take to recover (pay back) the investment.
c) (5p) What is the net present value of the combined cash flows if the
discount rate is 20%?
4. John Boots is a shoeshiner at a busy intersection in downtown Luther.
Customers arrive at a rate of 8 per hour and wait in line until they are served. It
takes John 5 minutes on average to polish a pair of shoes with a standard
deviation of 1.5 minutes. Arrivals tend to follow a Poisson distribution, and
service times follow a normal distribution.
a) (5p) What is the average utilization of the system?
b) (5p) What is the average waiting time in line of customers?
5. The daughter of the owner of a local hamburger restaurant is preparing to
open a new fast-food restaurant called Hasty Burgers. Based on the arrival
rates at her father’s outlets, she expects customers to arrive at the drivethrough window according to a Poisson distribution, with a mean of 20
customers per hour. The service rate is flexible; however, the service times
are expected to follow an exponential distribution. The drive-through window is
a single-server model.
a) (10p) What service rate is needed to keep the average time in the service
system (waiting time and being served) to 6 minutes?
b) (5p) What fraction of the time is the drive-through window employee
6. A local moving company has collected data on the number of moves they
have been asked to perform over the past three years. Moving is highly
seasonal, so the owner decides to apply the multiplicative seasonal method to