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Table 8-9 as the High Bidder on a Monstrous Storage Locker in Storage

question 28

Multiple Choice

Table 8-9

As the high bidder on a monstrous storage locker in Rancho Cucamonga, Darrell discovers much to his dismay that no collectibles or priceless works of art have been seeded in his locker. Instead he finds cases and cases of raw leather, zippers, packets of dye, and spools of thread. After some thorough research on typical prices, Darrell concludes that his cost of the leather is $2 per yard, his zipper cost if $1 per foot, the dye is $1 per packet and the thread is fifty cents per foot.

They don't call him "The Gambler" for nothing, and he is determined to find a way to profit from this misfortune as well as shed the burden of his son Brandon, who isn't much of an asset in the storage wars. He sets Brandon up with a small production business and, using his connections, manages to land contracts to supply leather purses, pants, backpacks and jackets that can be dyed to match current market trends. "In fashion, one day you're in and the next day you're out," Darrell explains to Brandon as he reviewed the contracts he had arranged. "We can make enough to get you out of the house now that I have 60,000 yards of leather, 50,000 feet of zipper material, 100,000 dye packets and 200,000 feet of thread."

One local distributer has placed an order for at least 5,000 purses and is willing to increase the order to a maximum of 10,000 if sales are strong. A purse requires 0.25 yards of leather, a one foot length of zipper material, one dye packet and two feet of thread. Darrell charges $41.50 for each one shipped. Another distributor is more interested in apparel and has placed orders for both pants at $33.50 and jackets at $104. They want at least 10,000 jackets up to a ceiling of 15,000 and at least 10,000 pairs of leather pants. As you might imagine, there is no limit to the number of pairs of leather pants that can be sold. A leather jacket requires 1.5 yards of leather, three feet of zipper material, two dye packets and eight feet of thread. Leather pants take a full two yards of leather, six inches of zipper material, two dye packets and six feet of thread. Yet another distributor is keen on backpacks and sees a market for at least 2,500 backpacks but is unwilling to take more than 7,500. Each backpack requires a half yard of leather, two feet of zipper material, one dye packet, and three feet of thread, and Darrell ships them to this distributor at $22.50.

-Use the information in Table 8-9 to answer this question.If Darrell elects to make 5000 purses, what is their total contribution to his profit?

Definitions:

Arbitragers

Individuals or entities that seek to profit from price discrepancies of the same asset in different markets or forms.

Russian Rubles

The currency used in Russia, which acts as a medium of exchange within the Russian economy.

Real Exchange Rate

The real exchange rate measures the value of one currency against another, adjusted for inflation, reflecting the purchasing power of one country's currency in another country.

Arbitrage

The practice of buying and selling assets in different markets or in different forms to exploit price differences for a profit.