You are trying to figure out whether to build a new fabrication facility for your IBM Power5 chips. It costs $1 billion to build a new fabrication facility. The benefit of the new fabrication is that you predict that you will be able to sell 3 times as many chips at 2 times the price of the old chips. The old chip had an area of 389 mm2, with a defect rate of 0.3 defects per cm2. The new chip will have an area of 186 mm2, with a defect rate of 0.7 defects per cm2. Assume that the wafer has a diameter of 300 mm and that it costs $500 to fabricate a wafer in either technology. Assume α=4 and that the wafer yield is 100% (i.e., no defective wafers are used and no test dies are included). You were previously selling the chips for 40% more than their cost. Note: for this problem you can just calculate the die cost and ignore the costs of testing and packaging the chips.
A. What is the cost of the old Power5 chip?
B. What is the cost of the new Power5 chip?
C. What was the profit on each old Power5 chip?
D. What is the profit on each new Power5 chip?
E. You used to sell 500,000 old Power5 chips per month, how long will it take to recoup the costs of the new fabrication facility?