Question 4 Part A: Choose the correct Before Tax Cash Flow Diagram for this scenario from the following choices. Supplier A Supplier B 800 Option A 0 4,000 Option B 1 Supplier A 0 1 ▼4,000 Supplier A Option C 0 1 4,000 Supplier A Option D 0 1 4N 1,400 i = 12% 0 1 5 800 1,400 4N i = 12% 1,400 +4N i = 12% 1,400 + 4N i = 12% 4,000 700 3N - 1.25N 1,100 3,000 i = 12% Supplier B 0 1 5 800 3,000 Supplier B 0 1 20 4 700 1,100 3N - 1.25N i = 12% 1,100 + 3N-1.25N 3,000 i = 12% Supplier B 800 0 1 20 1,100 + 3N-1.25N 3,000 i = 12% 4 700 ę° 20 700 20
Question 4 Part A: Choose the correct Before Tax Cash Flow Diagram for this scenario from the following choices. Supplier A Supplier B 800 Option A 0 4,000 Option B 1 Supplier A 0 1 ▼4,000 Supplier A Option C 0 1 4,000 Supplier A Option D 0 1 4N 1,400 i = 12% 0 1 5 800 1,400 4N i = 12% 1,400 +4N i = 12% 1,400 + 4N i = 12% 4,000 700 3N - 1.25N 1,100 3,000 i = 12% Supplier B 0 1 5 800 3,000 Supplier B 0 1 20 4 700 1,100 3N - 1.25N i = 12% 1,100 + 3N-1.25N 3,000 i = 12% Supplier B 800 0 1 20 1,100 + 3N-1.25N 3,000 i = 12% 4 700 ę° 20 700 20
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
A manufacturing company has the choice of two suppliers to buy a piece of equipment from to use in its process. Characteristics of these two suppliers and associated costs are tabulated below. The equipment from supplier A costs more to buy and maintain, but it also has more revenue per unit sold. Selling enough units will at some point make it worth the higher cost. How many units per year must the company sell in order to justify using supplier A (i.e. what is the breakeven number of units to sell)? Use an interest rate of 12% per year.
| Supplier A | Supplier B | |
| Initial cost | $4,000 | $3,000 |
| Sale price (revenue per unit) | $4 | $3 |
| Transportation costs (per unit) | $0 | $1.25 |
| Annual maintenance cost | $1,400 | $1,100 |
| Salvage value | $800 | $700 |
| Useful life of the equipment (years) | 5 | 4 |
Transcribed Image Text:Question 4 Part A: Choose the correct Before Tax Cash Flow Diagram for this scenario from the following choices.
Supplier A
Supplier B
800
Option A
0
4,000
Option B
1
Supplier A
0
1
▼4,000
Supplier A
Option C
0
1
4,000
Supplier A
Option D 0
1
4N
1,400
i = 12%
0
1
5
800
1,400
4N
i = 12%
1,400 +4N
i = 12%
1,400 + 4N
i = 12%
4,000
700
3N - 1.25N
1,100
3,000
i = 12%
Supplier B
0
1
5
800
3,000
Supplier B
0
1
20
4
700
1,100
3N - 1.25N
i = 12%
1,100 + 3N-1.25N
3,000
i = 12%
Supplier B
800
0
1
20
1,100 + 3N-1.25N
3,000
i = 12%
4
700
ę°
20
700
20
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