Question

You are considering adding a new food product to your store for resale. You are certain...

You are considering adding a new food product to your store for resale. You are certain that, in a month, minimum demand for the product will be 6 units, while maximum demand will be 8 units. (Unfortunately, the new product has a one-month shelf life and is considered to be waste at the end of the month.) You will pay $60/unit for this new product while you plan to sell the product at a $40/unit profit. The estimated demand for this new product in any given month is 6 units(p=0.1), 7 units(p=0.4), and 8 units(p=0.5). Using EMV analysis, how many units of the new product should be purchased for resale?

Question 13: Using EMV analysis, how many units of the new product should be purchased for resale?

A.

purchase 5
B.

purchase 6
C.

purchase 7
D.

purchase 8
E.

purchase 9

What is the maximum EMV of profit you can make?

A.

240
B.

250
C.

260
D.

270
E.

300
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

A13. C. Using EMV analysis, the number of  units of the new product should be purchased for resale = Purchase 7.

The maximum EMV of profit you can make is 270.

Solution:

Using EMV analysis,

EMV (Purchase 6 for resale)= 6(40)(0.1) + 6(40)(0.4) + 6(40)(0.5)=240

EMV (Purchase 7 for resale) = [6(40)-60](0.1) +7(40)(0.4) + 7 (40)(0.5) = 270

EMV (Purchase 8 for resale) = [6(40)-2(60)] (0.1) + [7 (40) - 60] (0.4) + 8(40)(0.5)= 260

Largest EMV= 270; Choose to purchase 7 units for resale.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Breakeven Analysis Your company is considering adding a new product. However, management wants more information regarding...
Breakeven Analysis Your company is considering adding a new product. However, management wants more information regarding the potential profits and or losses from the proposed venture. The company manufactures aluminum cans. A large distillery wants your company to produce cans for its’ new product. The facts are as follows: Selling price per can will be $ 1.35. A new production line will be added at a cost of $ 8,000 per year. Labor costs will be $ .25 cents per...
5: Make the assumption that a monopolist is selling a product with inverse demand of p...
5: Make the assumption that a monopolist is selling a product with inverse demand of p = 12 – 0.5q, p = price of the product while q = quantity of the product,. The monopolist’s marginal and average cost is 6. (a) Find the profit maximising level of q and p, and the firm’s profit. Find the profit maximising level of output and profit if the maximum price that can be charged per unit is (i) p = 7, (ii)...
5: Make the assumption that a monopolist is selling a product with inverse demand of  p =...
5: Make the assumption that a monopolist is selling a product with inverse demand of  p = 12 – 0.5q,  p = price of the product while  q = quantity of the product,. The monopolist’s marginal and average cost is 6. (a) Find the profit maximising level of q and p, and the firm’s profit. Find the profit maximising level of output and profit if the maximum price that can be charged per unit is (i) p = 7, (ii)  p = 10. (b)...
The ABC Corporation is considering introducing a new product, which will require buying new equipment for...
The ABC Corporation is considering introducing a new product, which will require buying new equipment for a monthly payment of $5,000. Each unit produced can be sold for $20.00. ABC incurs a variable cost of $10.00 per unit. Suppose that ABC would like to realize a monthly profit of $50,000. How many units must they sell each month to realize this profit?
A retail store is currently short of a certain product, and the manager is now planning...
A retail store is currently short of a certain product, and the manager is now planning on how many amounts of such product to import for the sales of them in next month. The store pays $20 (the import price) per unit of the product, and then sells it for $30 (the marked price in that store) per unit. However, if the store is not able to sell these imported products in the next month, these products must be disposed...
PROBLEM 10 You are considering adding a new product to your firm's existing product line. It...
PROBLEM 10 You are considering adding a new product to your firm's existing product line. It should cause a 15 percent increase in your total margin (i.e., new TM = old TM x 1.15), but it will also require a 50 percent increase in total assets (i.e., new TA = old TA x 1.5). You expect to finance this asset growth entirely by debt. If the following ratios were computed before the change, what will be the new return on...
Sensitivity analysis If you can sell a product for $67 and it costs you $28 per...
Sensitivity analysis If you can sell a product for $67 and it costs you $28 per unit to produce, while also paying $3,900 per month in fixed expenses, how many units must you sell each month in order to earn a monthly profit of $2,500? Show all your work. Using the information from the first problem, your variable costs per unit include labor ($18) and parts ($10). Your fixed costs include maintenance of $750, rent and utilities of $2000, and...
CASE-PART A Shrieves Casting Company is considering adding a new product line to its product mix,...
CASE-PART A Shrieves Casting Company is considering adding a new product line to its product mix, and the capital budgeting analysis is being conducted by Sidney Johnson, a recent business school graduate. The production line would be set up in unused space in Shrieves’s main plant. The machinery’s invoice price would be approximately $200,000, another $10,000 in shipping charges would be required to acquire the machinery from the supplier, and it would cost an additional $30,000 to install the equipment....
You are planning on selling a new product that has a variable cost of $62 a...
You are planning on selling a new product that has a variable cost of $62 a unit. Your monthly required return is 1.8 percent. To help boost your sales, you plan to offer new customers one month to pay. You expect that of 100 customers who purchase the product today, all will take advantage of the credit offer. However, 12 of them will not pay one month from now, while 88 will be so happy with the product that they,...
Your firm is considering designing a new computer/TV interface. If you design this product and demand...
Your firm is considering designing a new computer/TV interface. If you design this product and demand is high, you believe the present value of cash flows will be $15 million. If demand is low, the present value of revenues will be only $3 million. The probability that demand will be high is 35%. The product will cost $7 million dollars to design. Which of the following best describes the NPV of the project. Now McWeezy consulting has offered to figure...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT