operation management

| December 8, 2015

Based upon your experience, you need to recommend which egg grading machine should be purchased for the farm coop you recently joined. Everyone in the area that might use the egg grader has submitted their expected yield for the next 4 years. SuperEgg is the top machine based upon the feelings of most other members but you have noticed that their machines do not historically have any secondary market. Your research shows that the machines wear out and are not economical to repair after 4 years of use. CorrectEgg is a less popular choice but as part of their green initiative has a buy back program where you can return the machine after 4 years for 20% of its sales price. Unfortunately, the CorrectEgg machine runs slower which means that the cash flows from savings would be slightly lower. Both machines cost $10,000 and the cost of capital for the Coop is 12%. SuperEgg will save $3,500, $3,600, $3,500 and $3,700. CorrectEgg will save 90% of the SuperEgg model. What is your recommendation; SuperEgg or CorrectEgg, and why?

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