Question

A chemical manufacturer is setting up capacity in Europe and North America for the next three years. Annual demand in each market is 2 million kilograms (kg) and is likely to stay at that level. The two choices under consideration are building 4 million units of capacity in North America or building 2 million units of capacity in each of the two locations. Building two plants will incur an additional one-time cost of $2 million. The variable cost of production in North America (for either a large or a small plant) is currently $10/kg, whereas the cost in Europe is 9 euro/kg. The current exchange rate is 1 euro for U.S. $1.33. Over each of the next three years, the dollar is expected to strengthen by 10 percent, with a probability of 0.5, or weaken by 5 percent, with a probability of 0.5. Assume a discount factor of 10 percent. What should the chemical manufacturer do? At what initial cost differential from building the two plants will the chemical manufacturer be indifferent between the

Answer 1

Answer:

If 3

5

of a cistern is filled with water in 1 minute, how much more time is required to fill

the:

a. Rest of the cistern

b. Whole cister

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