1. Economic order quantity

(EOQ).

Tinnendo, Inc. believes it will sell

4

million zen-zens, an electronic game, this coming year. Note that this figure is for annual sales. The inventory manager plans to order zen-zens

34

times over the next year. The carrying cost is

$0.02

per zen-zen per year. The order cost is

$538

per order. What are the annual carrying cost, the annual ordering cost, and the optimal order quantity for the zen-zens? Verify your answer by calculating the new total inventory cost.

What is the annual carrying cost for the zen-zens?

$nothing

(Round to the nearest dollar.)

2.

Working capital and capital

budgeting.

Farbuck's Tea Shops is thinking about opening another tea shop. The incremental cash flow (not including the working capital investment) for the first five years is as follows:

Click on the icon

in order to copy its content into a spreadsheet

Initial capital

costequals

$3 comma 500 comma 000Operating cash flow for each

yearequals

$1 comma 000 comma 000Recovery of capital assets after five

yearsequals

$270 comma 000

The hurdle rate for this project is

11

%.

If the initial cost of working capital is

$520 comma 000

for items such as teapots, teacups, saucers, and napkins, should Farbuck's open this new shop if it will be in business for only five years? What is the most it can invest in working capital and still have a positive net present value?

Should Farbuck's open this new shop if it will be in business for only five years?(Select the best response.)

A.

Yes. Farbuck's should open the new shop because the project's NPV is $ 144 comma 724.

B.

No. Farbuck's should not open the new shop because the project's NPV is minus $ 151 comma 960.

C.

Yes. Farbuck's should open the new shop because the project's NPV is $ 151 comma 960.

D.

No. Farbuck's should not open the new shop because the project's NPV is minus $ 144 comma 724.