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?

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?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 17EB: Caduceus Company is considering the purchase of a new piece of factory equipment that will cost...

See similar textbooks

Similar questions

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. Would this opportunity cost be recorded in the accounting system? Why?
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?
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.
Pearl Excavating Inc. is purchasing a bulldozer. The equipment has a price of $92,800. The manufacturer has offered a payment plan that would allow Pearl to make 10 equal annual payments of $16,424.13, with the first payment due one year after the purchase. Pearl could borrow $92,800 from its bank to finance the purchase at an annual rate of 9%. Should Pearl borrow from the bank or use the manufacturer’s payment plan to pay for the equipment? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 7%.) Manufacturer's rate %
Cal Construction Company must choose between two types of cranes. Crane X costs $600,000, will last for 5 years, and will require $60,000 in maintenance each year. Crane Y costs $800,000 and will last for 7 years and will require $30,000 in maintenance each year. Maintenance costs for cranes X and Y are incurred at the end of each year. The appropriate discount rate is 10% per year. Which machine should the company purchase? Crane X as EAC is $218,278.49 Crane X as EAC is $827,447.21 Crane Y as EAC is $946,052.56 Crane Y as EAC is $194,324.40
Coronado Excavating Inc. is purchasing a bulldozer. The equipment has a price of $107,400. The manufacturer has offered a payment plan that would allow Coronado to make 10 equal annual payments of $17,500.00, with the first payment due one year after the purchase. How much total interest will Coronado pay on this payment plan? Coronadocould borrow $107,400 from its bank to finance the purchase at an annual rate of 9%. Should Coronado borrow from the bank or use the manufacturer's payment plan to pay for the equipment?
United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would make use of an existing warehouse, which is currently rented out to a neighboring firm. The next year’s rental charge on the warehouse is $185,000, and thereafter, the rent is expected to grow in line with inflation at 4% a year. In addition to using the warehouse, the proposal envisages an investment in plant and equipment of $1.71 million. This could be depreciated for tax purposes straight-line over 10 years. However, Pigpen expects to terminate the project at the end of 8 years and to resell the plant and equipment in year 8 for $570,000. Finally, the project requires an immediate investment in working capital of $435,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Year 1 sales of hog feed are expected to be $5.90 million, and thereafter, sales are forecasted to grow by 5% a year, slightly faster than the inflation rate. Manufacturing costs…
Mansukh
RJR Logistics needs a new color printer. The cost of the printer is $2,025, plus $380 per year in maintenance costs (the first maintence cost would occur in 1 year). The color printer will last for five years. Alternatively, a local company offers to lease the printer to RJR and do the maintenance as well. If the discount rate is 5.7%, what is the most RJR would be willing to pay per year to lease the color printer (the first lease payment would be due in one year)? The most RJR would be willing to pay per year to lease the color printer is closest to: O A. $897 B. $857 C. $884 D. $777
United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would make use of an existing warehouse, which is currently rented out to a neighboring firm. The next year's rental charge on the warehouse is $140,000, and thereafter, the rent is expected to grow in line with inflation at 4% a year. In addition to using the warehouse, the proposal envisages an investment in plant and equipment of $1.44 million. This could be depreciated for tax purposes straight-line over 10 years. However, Pigpen expects to terminate the project at the end of 8 years and to resell the plant and equipment in year 8 for $480,000. Finally, the project requires an immediate investment in working capital of $390,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Year 1 sales of hog feed are expected to be $5.00 million, and thereafter, sales are forecasted to grow by 5% a year, slightly faster than the inflation rate. Manufacturing costs…
Nikul
Raghubhai