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andrew11 [14]
4 years ago
7

Thomas Kratzer is the purchasing manager for the headquarters of a large insurance company chain with a central inventory operat

ion. Thomas’s fastest moving inventory item has a demand of 6000 units per year. The cost of each unit is $100.00, and the inventory carrying cost is $10.00 per unit per year. The average ordering cost is $30.00 per order. It takes about 5 days for an order to arrive, and demand for 1 week is 120 units (this is a corporate operation, there are 250 working days per year). a. What is the EOQ? b. What is the average inventory if the EOQ is used? c. What is the optimal number of orders per year? d. What is the optimal number of days in between any two orders? e. What is the annual cost of ordering and holding and holding inventory? f. What is the total annual inventory cost, including cost of the 6,000 units?

Business
1 answer:
n200080 [17]4 years ago
4 0

Answer:

a. 190 Units

b.95 Units

c. 31.6

d.7.9 Units

e.$1.898

f.$601.898

Explanation:

Please see attachment

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Answer:

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Bruin, Inc., has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 –$ 37,500 –$ 37,50
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Answer:

Year             Cash Flow (A)            Cash Flow (B)

0                      -37,500                      -37,500

1                         17,300                         5,700

2                        16,200                       12,900

3                        13,800                       16,300

4                         7,600                       27,500

1) Using an excel spreadsheet and the IRR function:

IRR project A = 20%

IRR project B = 19%

2) Using the IRR decision rule, Bruin should choose project A.

3) In this case, since the length of the projects is only 4 years, then there should be no problem with the IRR decision rule, but for projects with longer time lengths, the discounts rates might vary and the best option is to use the modified internal rate of return (MIRR). But in this case the NPV of project B is higher, then Bruin should probably project B because it has a higher NPV. The NPV is always more important then the IRR.

4) Again using an excel spreadsheet and the NPV function:

NPV project A = $6,331

NPV project B = $8,139

5) first we must subtract cash flows from A by the  cash flows from B:

1      $11,600

2     $3,300

3    -$2,500

4   -$19,900

then we calculate the IRR = 16%

Bruin should be indifferent between the two projects at a 16% discount rate. That means that at discount rates above 16%, you should choose project A, but at discount rates below 16%, you should choose project B

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