Cougar Telemarketing is considering establishing a call center. The initial cost
ID: 1091555 • Letter: C
Question
Cougar Telemarketing is considering establishing a call center. The initial cost will be $2,750,000 with a $27,500 market value any time within a 13-year period. The fixed cost of the center will be $816,446 per year with an average variable cost of $3.00 per call. Cougar expects to generate revenue of $5.25 per call with a capacity of 110,000 calls for the first year. The company also expects to increase the capacity uniformly each year. At an interest rate of 2% per year, determine the uniform amount the capacity must increase each year so that the company can recover its investment in 3 years.
Explanation / Answer
Let the uniform amount be x
2,750,000 = (110,000*(5.25-3)-816,446)/1.02 + ((110,000+x)*(5.25-3)-816,446)/1.02^2 + ((110,000+2x)*(5.25-3)-816,446)/1.02^3+ 27,500/1.02^3
x=681,681.29 or 681,682
uniform amount the capacity must increase each year =681,682
$681,681