Our home construction company still buys nails in 15-pound boxes but now we use an average of 3495 boxes a year. Preparing an order and receiving a shipment of nails involves a cost of $1.45 per order. Annual carrying costs are $0.7 per bag. What will be their total cost of ordering and carrying the nails

Answer:

Home Construction Company

Their total cost of ordering and carrying the nails is:

= $2,488.55.

Explanation:

a) Data and Calculations:

Cost of ordering and receiving a shipment of nails = $1.45 per order

Annual carrying costs per bag = $0.7

Annual average boxes = 3,495

EOQ = square root of (2 * 3,495 * $1.45)/$0.7

= square root of 120

Number of orders = 29 (3,495/120)

Ordering costs = $42.05 ($1.45 * 29)

Carrying costs = $2,446.50 ($0.7 * 3,495)

Total cost of ordering and carrying the nails = $2,488.55 ($42.05 + $2,446.50)

Happy Trails, a bicycle rental company, is considering purchasing three additional bicycles. Each bicycle would cost them $249.66. At the end of the first year the increase to their revenues would be $140 per bicycle. At the end of the second year the increase to their revenues again would be $140 per bicycle. Thereafter, there are no increases to their revenues. At which of the following interest rates is the sum of the present values of the additional revenues closest to the price of a bicycle?
a. 5 percent.
b. 6 percent.
c. 7 percent.
d. 8 percent.