Exhibit 12-2 a Moving Company Purchases Large Cardboard Shipping Boxes from a from a Supplier.The

question 11

Essay

Exhibit 12-2
A moving company purchases large cardboard shipping boxes from a supplier.The company uses approximately 10,000 of these boxes for packing customers' belongings each year,and demand for the boxes is essentially constant throughout the year.The box supplier offers the following pricing schedule,based on the quantity of boxes ordered: The fixed cost of placing an order is $50,and the company's cost of capital is 7% per year.
-An electronics retailer sells 2,500 units of a particular type of DVD player each year,with demand being essentially constant throughout the year.The retailer orders its DVD players from a regional supplier,and each time an order is placed an ordering cost of $100 is incurred.However,the retailer also has the option to make an investment to reduce the ordering costs.For each $2,000 it invests,ordering costs will decrease by 10%,down to a minimum of $30,at which point the cost cannot be further reduced.The unit cost of the each DVD player is $300 and there are no storage costs.Assuming a 7% cost of capital,formulate a Solver model to optimize the retailer's optimal order policy.How much,if any,should be invested in ordering cost reductions and what is the resulting order cost?

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Definitions:

Risk-free Rate

The theoretical return on investment with no risk of financial loss, often represented by the yield on government securities.

Exchange Rate

The price of one country's currency in terms of another, essential for currency exchange and international trade.

Inflation Rate

The speed at which the overall price level of goods and services increases, leading to a decrease in buying power.

Risk-free Rate

The expected return from an investment that carries no risk of losing money, commonly linked to government bonds.