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Captain Kirk is a division manager at the ENTERPRISE, :nc. for which he operates a spaceship. Dark mauer is an essential fue component for
Captain Kirk is a division manager at the ENTERPRISE, :nc. for which he operates a spaceship. Dark mauer is an essential fue component for space ships you didn't know :). Kirk's spaceship will consume 2,000 pounds or dark matter in each of the years 2016 2017 and 2013. So in 2016, Kirk wants to buy 6,000 pounds of dark macter for these three, ears. For simplicity, assume that in each of the years, the 2,000 pounds are consumed "in one go" on December 31 of that particular year. The cost of capital for ENTERPRISE, Inc. is 10% per year. Kirk is considering two competing sourcing offers: . Xenon Corp offers delivery of ail 6,000 pounds in a single shipment on December 31, 2016, at a per pound price of $100. That is, ending inventory of dark matter would be 4,000 pounds at the end of 2016 (the 6,000 pounds delivered on December 31, 2016, less the 2,000 pounds consumed immediately ); 2,000 pounds at the end of 2017; and zero at the end of 2018. Yoog Corp offers ust-in-time delivery of 2,000 pounds each on December 31 of the years 2016, 2017, and 2018, at a fixed per -pound price of $107.50. That is, there will never be any inventory of dark matter if Kirk goes with Yoog s offer. In both cases, payment is due upon delivery. Required: a. b. C. Suppose Captain Kirk is compensated based on Operating Income, calculated as revenues from his space trading activity net of COCS. Which offer will Kirk accept that of Xenon or that of Yoog? } Suppose now that Kirk is compensated based on Residual Income calculated Residual Income_t = Income_t - (10 %) x Assets_ (t-1), just as we defined it in class. Divisional assets include fixed assets (about which we know nothing) and working capital items such as inventory, but not cash. Which sourcing offer will Kirk accept now, assuming he plans to stay on his current job for at least another three years? (He looks old, I know.) Now put yourself in the shoes of the shareholders of ENTERPRISE sourcing offer would you want Kirk to accept, and why? as: 7 Inc. Which
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