Otool Incorporated Is Considering Using Stocks of an Old Raw

question 87

Multiple Choice

Otool Incorporated is considering using stocks of an old raw material in a special project. The special project would require all 240 kilograms of the raw material that are in stock and that originally cost the company $2,112 in total. If the company were to buy new supplies of this raw material on the open market, it would cost $9.25 per kilogram. However, the company has no other use for this raw material and would sell it at the discounted price of $8.35 per kilogram if it were not used in the special project. The sale of the raw material would involve delivery to the purchaser at a total cost of $71 for all 240 kilograms. What is the relevant cost of the 240 kilograms of the raw material when deciding whether to proceed with the special project?

• A) $1,933
• B) $2,004
• C) $2,220
• D) $2,112

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Definitions:

Maturity

The time at which payment to a bondholder is due or the termination date of an investment contract.

Stock Price

The cost of purchasing a share of a company on the stock market at any given time.

Call Option

A financial contract that gives the buyer the right, but not the obligation, to purchase an asset at a specified price within a designated time period.

Dividend Paying

Describes stocks or securities that regularly distribute a portion of the issuing company's earnings to shareholders.