Leo Is Considering Adding a Deli to His General Store

question 49

Multiple Choice

Leo is considering adding a deli to his general store.The remodelling expenses and shelving costs are estimated at $27,500.Deli sales are expected to produce net cash inflows of $7,300,$8,600,$9,700,and $9,750 for Years 1 to 4,respectively.Leo has a firm 3-year payback requirement.Should he add the deli?

• A)Yes; because the payback period is 3.19 years
• B)Yes; because the payback period is 2.82 years
• C)No; because the project never pays back
• D)No; because the payback period is 2.82 years
• E)No; because the payback period is 3.19 years

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Definitions:

Reorder Point

The level of inventory which triggers an action to replenish that particular inventory stock.

Quantity Discount

A reduced price for items purchased in large quantities.

Order Quantity

The amount of an item that is ordered from a supplier to replenish inventory or to fulfill customer demand.

Inventory Carrying Cost Rate

The total cost associated with holding inventory over a given period, often expressed as a percentage of the inventory value, including costs related to storage, insurance, taxes, and depreciation.