a. 2 alternatives/ choices + the major uncontrollable, external event
internal operation
outsourcing
uncontrollable external event— the demand of containers
number & percentage : 2000 containers— 25%. 4000 containers— 25%
Number = 25%*2000+3000*50%+4000*25%=3000 containers
b. Financial spreadsheet model
difference =4,709,348-4,085,602=623,746
c. sale of machinery = 300,000– cash inflow
impact on P&L: loss = 500,000-300,000=200,000 & severance payment =25,000➡️ 225,000 loss in P&L
but for cash flow: 300,000-25,000+56,250(tax saving)=331,250– cash inflow
d. sensitivity analysis:
sensitive to number of container
not sensitive to discount rate
outsourcing is more expensive at 2000 containers because HB has to pay the full contract; expensive at 4000 containers because there is higher variable costs per unit