Question 20.4: Based on our previous two examples, what size orders should ...

Fundamentals of Corporate Finance
Fundamentals of Corporate Finance

Based on our previous two examples(20.2, 20.3), what size orders should Thiewes place to minimize costs? How often will Thiewes restock? What are the total carrying and restocking costs? The total costs?

The "Step-by-Step Explanation" refers to a detailed and sequential breakdown of the solution or reasoning behind the answer. This comprehensive explanation walks through each step of the answer, offering you clarity and understanding.
Our explanations are based on the best information we have, but they may not always be right or fit every situation.

The blue check mark means that this solution has been answered and checked by an expert. This guarantees that the final answer is accurate.
Learn more on how we answer questions.

This Question has been Answered.

Already have an account?

Related Answered Questions

Question: 20.S-TP.2

Credit Where Credit Is Due You are trying to decide whether or not to extend credit to a particular customer. Your variable cost is $15 per unit; the selling price is $22. This customer wants to buy 1,000 units today and pay in 30 days. You think there is a 15 percent chance of default. The ...

Verified Answer:

If the customer pays in 30 days, then you will col...

Question: 20.S-TP.3

The EOQ Annondale Manufacturing starts each period with 10,000 “Long John” golf clubs in stock. This stock is depleted each month and reordered. If the carrying cost per golf club is $1, and the fixed order cost is $5, is Annondale following an economically advisable strategy? ...

Verified Answer:

We can answer by first calculating Annondale’s car...

Question: 20.S-TP.1

Credit Policy The Cold Fusion Corp. (manufacturer of the Mr. Fusion home power plant) is considering a new credit policy. The current policy is cash only. The new policy would involve extending credit for one period. Based on the following information, determine if a switch is advisable. The ...

Verified Answer:

If the switch is made, an extra 100 units per peri...

Question: 20.1

We’d Rather Fight Than Switch Suppose a company is considering a switch from all cash to net 30, but the quantity sold is not expected to change. What is the NPV of the switch? Explain. ...

Verified Answer:

In this case, Q′ − Q is zero, so the NPV is −PQ. W...

Question: 20.3

Restocking Costs In Example 20.2, suppose Thiewes sells a total of 600 pairs of boots in a year. How many times per year does Thiewes restock? Suppose the restocking cost is $20 per order. What are total restocking costs? ...

Verified Answer:

Thiewes orders 100 items each time. Total sales ar...

Question: 20.2

Carrying Costs Thiewes Shoes begins each period with 100 pairs of hiking boots in stock. This stock is depleted each period and reordered. If the carrying cost per pair of boots per year is $3, what are the total carrying costs for the hiking boots? ...

Verified Answer:

Inventories always start at 100 items and end up a...

Question: 20.A.1

Extra Credit Looking back at Locust Software, determine the NPV of the switch if the quantity sold is projected to increase by only 5 units instead of 10. What will be the investment in receivables? What is the carrying cost? What is the monthly net benefit from switching? ...

Verified Answer:

If the switch is made, Locust gives up P × Q = $4,...

Question: 20A.1

The Vulcan Corporation has cash outflows of $100 per day, seven days a week. The interest rate is 5 percent, and the fixed cost of replenishing cash balances is $10 per transaction. What is the optimal initial cash balance? What is the total cost? ...

Verified Answer:

The total cash needed for the year is 365 days × $...

Question: 20ARS-TP1

Given the following information, calculate the target cash balance using the BAT model at are the opportunity cost of holding cash, the trading cost, and the total cost? What would these be if $15,000 were held instead? If $25,000 were held? ...

Verified Answer:

From the BAT model, we know that the target cash b...

Question: 20CRS-TP1

On a typical day, a firm writes checks totaling $3,000. These checks clear in seven days. Simultaneously, the firm receives $1,700. The cash is available in two days on average. Calculate the disbursement, the collection, and the net floats. How do you interpret the answer? ...

Verified Answer:

The disbursement float is 7 days × $3,000 = $21,00...