Use this information for questions 13 through 20: Sony announced that it would s

Question

Use this information for questions 13 through 20:
Sony announced that it would spend $400 million on a facility to produce 33 million lithium ion battery cells per month. The plant has an expected life of 8 years with a salvage value of $20 million. If a cell generates $1.25 in revenues against $0.50 in costs, fixed annual costs are $40 million per year, and the MARR is 12% per year, answer the following:

The $400 million investment cost was actually a rough estimate. Previously, the company had built a similarly sized facility to produce an earlier generation of cells for $325 million. The cells of the new facility are 1.25 times larger than the cells in the older facility. If the exponent is 0.75, what investment cost estimate would be provided by the power law and sizing model for the new cell facility?

Explanation / Answer

If the exponent is 0.75, what investment cost estimate = 325*0.75=$243.75

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