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For the scenario provided, calculate the two costs of two different strategies: a. level annual production with inventory and stockout b. matching or chasing demand
Scenario: The Sherman-Brown Chemical Company is in the process of developing an aggregate capacity plan for next year. Two alternative plans are being considered, level capacity with inventory and matching demand. For each of the plans, determine the incremental cost of the plan compared to the alternate plan (the level capacity versus the matching demand). Assume that there are 234 workers currently employed at the beginning of Quarter 1, and that the beginning inventory is zero. In addition, assume that it takes 2.311 production hours to produce one gallon of paint. During a quarter, each worker works 65 days and 8 hours per day. The cost to hire a worker is $250 and the cost to layoff a worker is $300. Also, the carrying cost for a gallon of paint is $5 per year. The cost of a stockout is $25 per gallon. The labor rate is $20 per hour. Demand is as follows: Quarter 1: 40,000 gallons Quarter 2: 55,000 gallons Quarter 3: 52,500 gallons Quarter 4: 57,000 gallons
What is the beta of your portfolio? If you expect the market to earn 14 percent and the risk-free rate is 4 percent, what is the required return of the portfolio?
Jason Mathews purchased 150 shares of the Hodge & Mattox Energy fund. Each share cost $24.25. Fifteen months later, he decided to sell his shares when the share value reached $28.50. a. What is the amount of his total initial investment? b. What was ..
As chairman of Alpha Inc you are evaluating a potential move to acquire Beta Corp. You both have similar risk. "Alpha Inc" has a WACC of 9%. Beta Corp finished the past fiscal year with $3,250,000 in FCF (free cash flow). If free cash flow for beta c..
A stock has an expected return of 15.1 percent, a beta of 1.60, and the expected return on the market is 11.40 percent. What must the risk-free rate be?
An investment will pay you $91,000 in five years. Assume the appropriate discount rate is 6.25 percent compounded daily. What is the present value?
Assume the real risk free rate is 2% and that the maturity risk premium is zero. If a one year Treasury bond yield is 5% and a 2yr Treasury bond yields 7%, what is the 1year interest rate that is expected one year from now. What inflation rate is exp..
The Underground's has annual sales of $1.46 million. The cost of goods sold is equal to 80 percent of sales. The firm has an average accounts receivable balance of $150,000 and an average accounts payable balance of $163,500. How many days on average..
Should we care about executive compensation or how much hedge fund managers earn? How should incentive compensation be changed? Should it be changed? Who can change it?
Butterfly trade is: (a) Investing the same amount in long term bonds in a rolling period; (b) Buying short-term and long-term bonds and short intermediate-term bonds; (c) Mimicking the portfolio of a bond index; (d) Buying under-priced bonds using va..
Consider a 20-year, $115,000 mortgage with a rate of .0555 percent. Eight years into the mortgage, rates have fallen to 5 percent. What would be the monthly saving to a homeowner from refinancing the outstanding mortgage balance at the lower rate for..
Explain why bondholders often prefer a sinking fund provision in a bond issue. Explain what is meant by interest rate risk.
Suppose that there are no storage costs for crude oil and the interest rate for borrowing or lending is 5% per annum. How could you make money on May 26, 2010, by trading July 2010 and December 2010 contracts? Use Table 2.2.
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