Question
Lola Catering is a firm based in North Soho that provides beverage services to cor- porate functions, specializing in champagne and cherry cola (C-O-L-A Cola).
Lola Catering is a firm based in North Soho that provides beverage services to cor- porate functions, specializing in champagne and cherry cola (C-O-L-A Cola). Lola is considering bidding on a four-year, fixed annual payment contract to provide beverages to all the EOFY parties of Electric Candlelight Limited, who currently pays Lola's direct competitor, Del Rey Catering, $18,400 per annum to provide their events with strange-tasting, Pepsi Cola.
In order to be able to service the contract with Electric Candlelight, Lola will need to purchase new glassware at an up-front net cost of $14,700 (i.e. att=0). Just before the time of the first EOFY party one year from now, Lola would need to spend $3,900 on beverage supplies. After that, the cost of these supplies is expected to rise by 5.0% per annum for the foreseeable future. Assume that Lola Catering's cost of capital for projects of this type is 33.6% p.a. and that Electric Candlelight pays the annual contract fee on the day of each meeting.
Which of the following is closest to the maximum amount that Lola Catering would be willing to undercut (i.e. bid less than) Del Rey's existing annual fee by?
a. $7,682.07 p.a. b. $4,428.80 p.a. c. $7,071.09 p.a. d. $7,301.18 p.a.
e. $12,852.05 p.a.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started