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An analytical laboratory has current revenues of £300,000 and its sales forecasts indicate that…

An analytical laboratory has current revenues of £300,000 and its sales forecasts indicate that business is likely to grow by £100,000 per year for the next eight years. The laboratory’s costs are stable at 60 per cent of its revenue and are likely to remain so. The optimum capacity level for a laboratory of this type is one that can cope with £400,000 worth of business (this is the capacity of its current laboratory). The cost of building a new laboratory is £500,000 payable on completion of the laboratory. Assuming that the forecasts are accurate:
(a) Calculate the funding requirements when capacity is such that demand is always met (capacity leading).
(b) Determine the funding requirements when capacity is increased only when it can be fully utilized (capacity lagging).
(c) Devise a capacity expansion strategy that fulfils as much demand as possible while keeping the maximum funding requirement to £150,000 or below.

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