Question 1: How did the laser cutter “save” Peerless Saw Company when it could not be justified on payback or ROI grounds? Does this mean that the economics of automation is not important, or at least were not for Peerless?
Question 2: Compare the decision Ted faces now—the 1200-watt laser purchase—with the decision he faced in 1981 when he was considering the three punch presses. Structure the investment decision for each of these cases. (Assume a computer costs about $20,000 and software about $80,000. Training costs are included in this charge.) Consider costs, benefits, and risks. How has the decision environment changed? Is Ted more or less comfortable with this decision? How is this decision easier? How is it harder?
Question 3: What do you think the potential problems might be in purchasing the 1200-watt laser? What about the potential benefits? Will this laser have the same impact on the business as the first laser? What are the strategic variables involved in these decisions?
Question 4: Estimate costs and revenues for this new system to perform a payback analysis. Use the variable cost data in Exhibit 3; assume the laser cuts at the rate of 40 inches per minute, that a typical blade of 14 inches sells for $25 (33% discount for volumes near 100 units), and the same computer and software will be used as currently. Material load time for a 10-blade sheet of steel is one minute. Use a 3-inch arbor hole size and assume that a cut tooth doubles the cut distance. How would you address the quantification of the intangible benefits the new system might provide? Is the new system justified on an economic basis? How might this system be more or less justifiable on an economic basis than the first laser system?
Question 5: What are the organizational/behavioral considerations involved in this purchase? Are they the same as the first laser? How might this system be more or less justifiable on a noneconomic basis than the first laser system?
Question 6: Ted is thinking about offering 25 of his largest customers the opportunity to tie into his system directly from their offices. What benefits would this offer to the customers and Peerless? What problems might it pose?
Question 7: Advise Ted on the purchase of the new laser system.
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