Total Marks: 10
Due Date: 28th January, 2020
SEMESTER FALL 2019
SUPPLY CHAIN MANAGEMENT (MGMT614) ASSIGNMENT NO.01
“The Designers” an international furniture making company wants to expand its business in Pakistan by
introducing its specialized Teak-wood rocking chair. For this purpose, the company needs a warehouse to store the goods. The company has forecasted the demand of the chair to be 4000 units each year for the next four years. The revenue generated by the company is Rs.20000 per chair. A single chair takes up an area of about 10 square feet.
Swift Logistics, a warehousing expert company, has offered to provide its services for storage of the goods. It has presented two alternatives: either to Lease the warehouse at the rate of Rs.10000 per 100 square feet or have it on Spot Market rate which is Rs.15000 per 100 square feet.
a) Being the supply chain manager of “The Designers”, you have to decide either to hire the warehouse on Lease or choose On Spot rate on the basis of a Discounted Cash Flow Analysis with discount rate of 15%; considering the fact that the only relevant cost is the warehouse cost (7 marks)
b) If the company decides to shut down the production after two years, will the option chosen in Part (a) still be feasible? Provide justification for your answer (3 marks)
In this assignment, you have to calculate the NPV (Net Present Value) of both options.
You are required to show the necessary calculations in solution.
No theoretical definitions and explanations are required in part (a).
Watch video lectures and consult book/notes to complete the assignment
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