A car dealer must pay $20,000 for each car purchased.The annual holding cost is estimated to be 25% of thedollar value of inventory. The dealer sells an averageof 500 cars per year. He is willing to backlog somedemand but estimates that if he is short one car for oneyear, he will lose $20,000 worth of future profits. Eachtime the dealer places an order for cars, the orderingcost is $10,000. Determine the dealer’s optimal ordering policy. What is the maximum shortage that willoccur? Assume it costs $5000 to store a car for a year(this is in addition to the holding cost above).

A car dealer must pay $20,000 for each car purchased.The annual holding cost is estimated to be 25% of thedollar value of inventory. The dealer sells an averageof 500 cars per year. He is willing to backlog somedemand but estimates that if he is short one car for oneyear, he will lose $20,000 worth of future profits. Eachtime the dealer places an order for cars, the orderingcost is $10,000. Determine the dealer’s optimal ordering policy. What is the maximum shortage that willoccur? Assume it costs $5000 to store a car for a year(this is in addition to the holding cost above).

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

ChapterA: Appendix - Time Value Of Cash Flows: Compound Interest Concepts And Applications

Section: Chapter Questions

Problem 30P

See similar textbooks

Similar questions

Avignon Restaurant is considering the purchase of a $10,100 soufflé maker. The soufflé maker has an economic life of four years and will be fully depreciated by the straight-line method. The machine will produce 2,050 soufflés per year, with each costing $2.45 to make and priced at $5.30. Assume that the discount rate is 14 percent and the tax rate is 21 percent. What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV: Should the company make the purchase? multiple choice •  Yes •  No
The owner of a small local flea market rents tables to vendors every Sunday. His only expense is the purchase of the building in which the flea market operates at a cost of $450,000. The owner expects to rent about 20 tables per week (1000 per year), and wishes to receive a 12% annual return on his investment in the building. What gross margin (in dollars) should the owner use?
Halliday Inc. receives a $2 million payment once a year. Of this amount, $700,000 is needed for cash payments made during the next year. Each time Halliday deposits money in its account, a charge of $2.00 is assessed to cover clerical costs. If Halliday can hold marketable securities that yield 5 percent, and then convert these securities to cash at a cost of only the $2 deposit charge, what is the total cost for one year of holding the minimum cost cash balance according to the Baumol model?
Lancaster Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 40, and it currently pays on the 5th day and takes discounts. Lancaster plans to expand, which will require additional financing. Assume 365 days in year for your calculations. If Lancaster decides to forgo discounts, how much additional credit could it obtain? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Do not round intermediate calculations. Round your answer to the nearest cent. %24 What would be the nominal cost of that credit? Do not round intermediate calculations. Round your answer to two decimal places. % What would be the effective cost of that credit? Do not round intermediate calculations. Round your answer to two decimal places. % If the company could get the funds from a bank at a rate of 9%, interest paid monthly, based on a 365-day year, what would be the effective cost of the bank loan? Do not round intermediate calculations. Round your…
Lancaster Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 30, and it currently pays on the 5th day and takes discounts. Lancaster plans to expand, which will require additional financing. Assume 365 days in year for your calculations. If Lancaster decides to forgo discounts, how much additional credit could it obtain? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Do not round intermediate calculations. Round your answer to the nearest cent.$ What would be the nominal cost of that credit? Do not round intermediate calculations. Round your answer to two decimal places. % What would be the effective cost of that credit? Do not round intermediate calculations. Round your answer to two decimal places. % If the company could get the funds from a bank at a rate of 10%, interest paid monthly, based on a 365-day year, what would be the effective cost of the bank loan? Do not round intermediate calculations. Round your…
Lancaster Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 50, and it currently pays on the 5th day and takes discounts. Lancaster plans to expand, which will require additional financing. Assume 365 days in year for your calculations. If Lancaster decides to forgo discounts, how much additional credit could it obtain? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Do not round intermediate calculations. Round your answer to the nearest cent. 2$ What would be the nominal cost of that credit? Do not round intermediate calculations. Round your answer to two decimal places. % What would be the effective cost of that credit? Do not round intermediate calculations. Round your answer to two decimal places. % If the company could get the funds from a bank at a rate of 9%, interest paid monthly, based on a 365-day year, what would be the effective cost of the bank loan? Do not round intermediate calculations. Round your answ…
You own a wholesale plumbing supply store. The store currently generates revenues of $1.03 million per year. Next year, revenues will either decrease by 9.7% or increase by 5.3%, with equal probability, and then stay at that level as long as you operate the store. You own the store outright. Other costs run $890,000 per year. There are no costs to shutting down; in that case you can always sell the store for $490,000. What is the business worth today if the cost of capital is fixed at 10.2% ? (Hint: Make sure to round all intermediate calculations to at least four decimal places.) What is the business worth today if the cost of capital is fixed at 10.2%? Today the business is worth $. (Round to the nearest dollar.)
Junker Rental Car has a contract with a garage for major repair service for $450 per car, every 6 months. Management estimates that for $350,000, the company could have its own facility, financed at 8% interest for 20 years, and a salvage value of $20,000. They will do their own car repairs at a cost of $200 per car, every 6 months. Ignoring taxes and other economic factors, what is the minimum number of cars needed to make the change feasible?
A company can automate its payroll department by purchasing a computer. The computer costs $25,000 now, but it may cost only $20,000 next year. The company expects to save $6500 a year during its useful life of 5 years. The discount rate is 12%, and the risk-free rate is 6%. The company uses straight-line depreciation and its tax rate is 30%. Should the company install the computer this year, or next year?
Norman buys baseball bats from a manufacturer at P10 each. Norman expects to sell 90,000 bats evenly over the next year. Norman's cost of capital is 10 percent. The total out-of-pocket cost to carry one bat in inventory is P0.50 and the cost of ordering bats is P15per order. 22. Suppose that Norman orders 3,000 bats at a time. What is the total annual inventory cost? P 750 b. P1,200 с. Р2,250 d. P 2,700 а.
The Branding Iron Company sells its irons for $57 apiece wholesale. Production cost is $47 per iron. There is a 32% chance that wholesaler Q will go bankrupt within the next eight months. Q orders 1,000 irons and asks for eight months’ credit. Assume that the discount rate is 12% per year, there is no chance of a repeat order, and Q will pay either in full or not at all. a. Should you accept the order? Provide your explanations with calculations b. What is the break-even probability of default for wholesaler Q in this order? c. Suppose that customers who do not default become repeat customers and place the same order every period forever. What is the break-even probability of default?
Norman buys baseball bats from a manufacturer at P10 each. Norman expects to sell 00 000 bats evenly over the next year. Norman's cost of capital is 10 percent. The total out-of-pocket cost to carry one bat in inventory is P0.50 and the cost of ordering bats is P15per order. 22. Suppose that Norman orders 3,000 bats at a time. What is the total annual inventory cost? a. P 750 b. P 1,200 c. P 2,250 d. P 2,700 23. What is the economic order quantity? a. 1,342 units b. 1,643 units c. 2,324 units d. 3,000 units 24. How times would Norman have to place an order in one year? many a. 67 times b. 55 times c. 39 times d. 30 times