Cooling Tools, Inc. is currently producing 1,228 of small refrigerators per month but the company's CEO plans to increase production at a rate of 7.83 percent per month until the firm is producing 5,407 of refrigerators per month. How many months will this take? Round the answer to two decimal places. Your Answer: Answer
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- Halifax Shoes has 30% of its sales in cash and the remainder on credit. Of the credit sales, 65% is collected in the month of sale, 25% is collected the month after the sale, and 5% is collected the second month after the sale. How much cash will be collected in August if sales are estimated as $75,000 in June, $65,000 in July, and $90,000 in August?Now assume that it is several years later. The brothers are concerned about the firm’s current credit terms of net 30, which means that contractors buying building products from the firm are not offered a discount and are supposed to pay the full amount in 30 days. Gross sales are now running $1,000,000 a year, and 80% (by dollar volume) of the firm’s paying customers generally pay the full amount on Day 30; the other 20% pay, on average, on Day 40. Of the firm’s gross sales, 2% ends up as bad-debt losses. The brothers are now considering a change in the firm’s credit policy. The change would entail: (1) changing the credit terms to 2/10, net 20, (2) employing stricter credit standards before granting credit, and (3) enforcing collections with greater vigor than in the past. Thus, cash customers and those paying within 10 days would receive a 2% discount, but all others would have to pay the full amount after only 20 days. The brothers believe the discount would both attract additional customers and encourage some existing customers to purchase more from the firm—after all, the discount amounts to a price reduction. Of course, these customers would take the discount and hence would pay in only 10 days. The net expected result is for sales to increase to $1,100,000; for 60% of the paying customers to take the discount and pay on the 10th day; for 30% to pay the full amount on Day 20; for 10% to pay late on Day 30; and for bad-debt losses to fall from 2% to 1% of gross sales. The firm’s operating cost ratio will remain unchanged at 75%, and its cost of carrying receivables will remain unchanged at 12%. To begin the analysis, describe the four variables that make up a firm’s credit policy and explain how each of them affects sales and collections.Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return In Excel, see Appendix C.
- The Silver Star Bicycle Company will manufacture both mens and womens models for its Easy-Pedal bicycles during the next two months. Management wants to develop a production schedule indicating how many bicycles of each model should be produced in each month. Current demand forecasts call for 150 mens and 125 womens models to be shipped during the first month and 200 mens and 150 womens models to be shipped during the second month. Additional data are as follows: Last month, the company used a total of 1,000 hours of labor. The companys labor relations policy will not allow the combined total hours of labor (manufacturing plus assembly) to increase or decrease by more than 100 hours from month to month. In addition, the company charges monthly inventory at the rate of 2% of the production cost based on the inventory levels at the end of the month. The company would like to have at least 25 units of each model in inventory at the end of the two months. (Hint: Define variables for production and inventory held in each period for each product. Then use a constraint to define the relationship between these: inventory from end of previous period + produced this period demand this period = inventory at end of this period.) a. Establish a production schedule that minimizes production and inventory costs and satisfies the labor-smoothing, demand, and inventory requirements. What inventories will be maintained and what are the monthly labor requirements? b. If the company changed the constraints so that monthly labor increases and decreases could not exceed 50 hours, what would happen to the production schedule? How much will the cost increase? What would you recommend?Earthies Shoes has 55% of its sales in cash and the remainder on credit. Of the credit sales, 70% is collected in the month of sale, 15% is collected the month after the sale, and 10% is collected the second month after the sale. How much cash will be collected in June if sales are estimated as $75,000 in April, $65,000 in May, and $90,000 in June?ABC Manufacturing expects to sell 1,025 units of product in 2022 at an average price of $100,000 each based on current demand. The Chief Marketing Officer forecasts growth of 50 units per year through 2026. So, the demand will be 1,025 units in 2022, 1,075 units in 2023, etc. and the $100,000 price will remain consistent for all five years of the investment life. However, ABC cannot produce more than 1,000 units annually based on current capacity. In order to meet demand, ABC must either update the current plant or replace it. If the plant is replaced, an initial working capital investment of $6,000,000 is required and these funds will be released at the end of the investment life to be used elsewhere. The following table summarizes the projected data for both options: Update Replace Initial investment in 2022 $ 125,000,000 $ 130,000,000 Terminal salvage value in 2026 $ 8,000,000 $…
- The Warren W. Fisher Computer Corporation purchases 8,000 transistors each year as components inminicomputers. The unit cost of each transistor is $10, and the cost of carrying one transistor in inventoryfor a year is $3. Ordering cost is $30 per order and finds that deliveries from his supplier generally take 5working days. What are?(a) the optimal order quantity.(b) the expected number of orders placed each year.(c) the expected time between orders? Assume that Fisher operates on a 200-day working year.(d) the reorder point for the transistors.ABC Manufacturing expects to sell 1,025 units of product in 2023 at an average price of $100,000 per unit based on current demand. The Chief Marketing Officer forecasts growth of 50 units per year through 2027. So, the demand will be 1,025 units in 2023, 1,075 units in 2024, etc. and the $100,000 price will remain consistent for all five years of the investment life. However, ABC cannot produce more than 1,000 units annually based on current capacity. In order to meet demand, ABC must either update the current plant or replace it. The old equipment is fully depreciated and can be sold for $4,000,000 if the plant is replaced. If the plant is updated, the costs to update it would be capitalized and depreciated over the useful life of the updated plant. If the plant is updated, then the old equipment would be retained. The following table summarizes the…A business plans to manufacture 2,000 watches a month, each taking 0.5 labour hours to produce. What is the total direct labour budget (in hours AND in value £) for the year (12 months) if the direct labour rate is £15 per hour and a pay rise of 12% is awarded three months into the year?
- Phillip F lamm's Computer Store in Texas sells a printer for $200. Demand is constant during the year, and annual demand is forecasted to be 600 units. Holding cost is $20 per unit per year, whereas the cost of ordering is $60 per order.Currently, the company is ordering 12 times per year (50 units each time). There are 250 working days per yea r, and the lead time is 10 days.a) Given the current policy of ordering 50 units at a time, what is the total of the annual ordering cost and the annual holding cost?b) If the company used the absolute best inventory policy, what would be the total of ordering and holding costs?c) What is the reorder point?Metalfab Pump and Filter, Inc. estimates that the cost of steel bodies for pressure valves will increase by $2 every 3 months. If the cost for the first quarter is expected to be $80, what is the present worth of the costs for a 3-year time period at an interest rate of 3% per quarter?Austin Computers company sales in December 2018 were $80,000 and they are expected to rise by $5,000 per month for the next 5 months. Of sales, 80 per cent are collected during the month of sale and the rest two months after sales. The cost of sales is 60 per cent of sales and, the company plans to keep an inventory at the end of each month equal to 40 per cent of the anticipated sales for the next month’s sales. Suppliers are paid one month after purchases are made. Monthly wages amount to $4,500, rent and heating $750 and depreciation $600. A machine is to be bought in March for $6,000 paid in cash. The purchase of the machine means that the monthly change for depreciation will increase by $40. The inventory held at January 1st is $15,500. Required: Calculate the estimated cash collection from sales for February and March. Calculate the purchases for February and March. Assuming that the cash balance at 31/01/2019 is $10,000; prepare a cash budget for the two months ending March…
