Compu-Tech Company produces LCD monitors for desktop computers at its manufacturing facility at Petechannappa, Bangalore, India. The company currently ships its products to a warehouse 1,900 kilometers from the manufacturing facility through common carriers at a rate of ₹43.20 per kilogram.

Allu Sirish, a manager at Compu-Tech, is considering whether to purchase a truck for transporting products to the warehouse. The following data on the truck are available:

Sirish feels that the investment in this struck is particularly attractive because of successful negotiation with Smart-Print Inc., which has agreed to pay ₹184,000 per load of Smart-Print’s products on the return journey from the warehouse location up to and including 100 loads per year. 

Compu-Tech’s marketing division has estimated that the company will require to ship 192,500 LCDs to the warehouse each year for the next 4 years. The truck will be fully loaded on each round trip. The weight of each LCD is approximately 1 kilogram.

1. Assume that Compu-Tech requires a rate of return of 18%. Should it purchase the truck? Show computations to support your answer. 

2. What is the minimum number of trips that Smart-Print must guarantee to make the deal acceptable to Compu-Tech, based on the preceding numbers alone? 

3. What qualitative factors might influence your decision? Be specific.

Transcribed Image Text:

Purchase price Economic life Salvage value after 4 years Capacity of the truck Cash operating cost 4,000,000 4 years 0 3500 kg *76 per km