Solar Engines manufactures solar engines for tractor-trailers. Given the fuel savingsavailable, new orders for 135 units have been made by customers requesting credit. Thevariable cost is $9,600 per unit, and the credit price is $11,750 each. Credit is extendedfor one period. The required return is 1.8 percent per period. If Solar Engines extendscredit, it expects that 20 percent of the customers will be repeat customers and placethe same order every period forever and the remaining customers will be one-timeorders. Calculate the NPV of the decision to grant credit. (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g., 32.16.)O Answer is complete but not entirely correct.NPV$5,386,717.95

Net Present Value (NPV) of a project is the cost and benefit analysis of the investment. All the…

Answered: Solar Engines manufactures solar…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Solar Engines manufactures solar engines for tractor - trailers. Given the fuel savings available, new orders for 175 units have been made by customers requesting credit. The variable cost is $11, 200 per unit, and the credit price is $13, 750 each. Credit is extended for one period. The required return is 1.7 percent per period. If Solar Engines extends credit, it expects that 35 percent of the customers will be repeat customers and place the same order every period forever and the remaining customers will be one time orders. Calculate the NPV of the decision to grant credit. (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)
Solar Engines manufactures solar engines for tractor-trailers. Given the fuel savings available, new orders for 170 units have been made by customers requesting credit. The variable cost is $11,000 per unit, and the credit price is $13,500 each. Credit is extended for one period. The required return is 1.6 percent per period. If Solar Engines extends credit, it expects that 15 percent of the customers will be repeat customers and place the same order every period forever and the remaining customers will be one-time orders. Calculate the NPV of the decision to grant credit. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
An auto parts supplier sells batteries to car dealers and auto mechanics. The annual demand is approximately 1,200 batteries. The suppliers pays $28 for each battery and estimates that the annual holding cost is $8.40 per year. It costs approximately $20 to place an order. Assume a 250-day working year. a. Compute for the EOQ round off your answer to the nearest whole number. b. Compute for the expected number of orders. Round off your answer to the nearest whole number. c. Compute for the expected time between orders. Round off your answer to the nearest whole number.
An auto parts supplier sells Hardy-brand batteries to car dealers and auto mechanics. The annual demand is approximately 1,200 batteries. The supplier pays $28 for each battery and estimates that the annual holding cost is 30 percent of the battery’s value. It costs approximately $20 to place an order (managerial and clerical costs). The supplier currently orders 100 batteries per month. What is the economic order quantity? Based on your answer above, how many orders will be placed per year using the EOQ? Determine the ordering, handling, and total inventory costs for the EOQ. Determine the effective annualized cost of financing for the following credit terms, assuming that (1) discounts are not taken, (2) accounts are paid at the end of the credit period, and (3) use 365=day year: a. 1/10, n/30; b. 3/10, n/30; c. 3/10, n/60; d. 2/10, n/90
Best Trim, a manufacturer of lawn mowers, predicts that it will purchase 204,000 spark plugs next year. Best Trim estimates that 17,000 spark plugs will be required each month. A supplier quotes a price of $9 per spark plug. The supplier also offers a special discount option: If all 204,000 spark plugs are purchased at the start of the year, a discount of 2% off the $9 price will be given. Best Trim can invest its cash at 10% per year. It costs Best Trim $260 to place each purchase order. Q. What is the opportunity cost of interest forgone from purchasing all 204,000 units at the start of the year instead of in 12 monthly purchases of 17,000 units per order?
Global Lawn, a manufacturer of lawn mowers, predicts that it will purchase 228,000 spark plugs next year. Global Lawn estimates that 19,000 spark plugs will be required each month. A supplier quotes a price of $11.00 per spark plug. The supplier also offers a special discount option: If all 228,000 spark plugs are purchased at the start of the year, a discount of 4% off the $11.00 price will be given. Global Lawn can invest its cash at 10% per year. It costs Global Lawn $260 to place each purchase order. Read the requirements. Requireme Let's begin t Differer Requirements 1. What is the opportunity cost of interest forgone from purchasing all 228,000 units at the start of the year instead of in 12 monthly purchases of 19,000 units per order? C---- 2. Would this opportunity cost be recorded in the accounting system? Why? 3. Should Global Lawn purchase 228,000 units at the start of the year or 19,000 units each month? Show your calculations. 4. What other factors should Global Lawn…
Best Trim, a manufacturer of lawn mowers, predicts that it will purchase 204,000 spark plugs next year. Best Trim estimates that 17,000 spark plugs will be required each month. A supplier quotes a price of $9 per spark plug. The supplier also offers a special discount option: If all 204,000 spark plugs are purchased at the start of the year, a discount of 2% off the $9 price will be given. Best Trim can invest its cash at 10% per year. It costs Best Trim $260 to place each purchase order. Q. Should Best Trim purchase 204,000 units at the start of the year or 17,000 units each month? Show your calculations.
Grass Eaters, a manufacturer of lawn mowers, predicts that it will purchase 264,000 spark plugs next year. Grass Eaters estimates that 22,000 spark plugs will be required each month. A supplier quotes a price of $8.00 per spark plug. The supplier also offers a special discount option: If all 264,000 spark plugs are purchased at the start of the year, a discount of 2% off the $8.00 price will be given. Grass Eaters can invest its cash at 10% per year. It costs Grass Eaters $280 to place each purchase order. Read the requirements Requirement 1. What is the opportunity cost of interest forgone from purchasing all 264,000 units at the start of the year instead of in 12 monthly purchases of 22,000 units per order? Let's begin the calculation for the opportunity cost of interest forgone by first determining the formula, then calculate the opportunity cost. Opportunity cost Requirements What is the opportunity cost of interest forgone from purchasing all 264,000 units at the start of the year…
A hardware store sells paint that has a demand of 9,706 gallons per year. The store purchases the paint from a supplier for 11.2 dollars per gallon The unit holding cost per year is 24 percent of the unit purchase cost. while the ordering cost is 175 dollars per order. The paint supplier has a lead time of 10 days. What is the annual ordering cost if the store uses the order quantity of 2,103 gallons per order? Assume EOQ model is appropriate. Use at least 4 decimal places.
Best Trim, a manufacturer of lawn mowers, predicts that it will purchase 204,000 spark plugs next year. Best Trim estimates that 17,000 spark plugs will be required each month. A supplier quotes a price of $9 per spark plug. The supplier also offers a special discount option: If all 204,000 spark plugs are purchased at the start of the year, a discount of 2% off the $9 price will be given. Best Trim can invest its cash at 10% per year. It costs Best Trim $260 to place each purchase order. Q. What other factors should Best Trim consider when making its decision?
A firm currently produces and sells 2,500 units every 60 days. One unit costs $150 to produce and sells for $500. The firm currently offers all its customers a "net 30" credit period and all customers pay on Day 60. In order to boost sales, the firm is considering Project D, which will simply add a window and offering a 10% discount for customers who pay immediately. Research suggests sales will increase sales to 2,600 units and approximately one-quarter of all customers will pay on Day 0 and 75% will pay on Day 30. If the annualized cost of capital is 6%, what is the NPV of Project D? The firm will continue to run to perpetuity. (Assume production and sales occur on Day 0 and repeat every 30 days).
Locust Software sells computer training packages to its business customers at a price of $101. The cost of production (in present value terms) is $99. Locust sells its packages on terms of net 30 and estimates that about 7% of all orders will be uncollectible. An order comes in for 30 units. The interest rate is 1.3% per month. Required: a-1. Calculate the profit or loss if this is a one-time order and sale will not be made unless credit is extended a-2. Should the firm extend credit if this is a one-time order? b. What is the break-even probability of collection? c-1. Now suppose that if the customer pays this month's bill, they will place an identical order in each month indefinitely and can be safely assumed to pose no risk of default.Calculate the present value of the sale. c-2. Should credit be extended? d. What is the break-even probability of collection in the repeat-sales case? Complete this question by entering your answers in the tabs below. Req A1 A2 and Req C1 C2 and B D…

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