Armidale Distributors Is a Distributor of DVDs What Is the Required Dollar Annual Return on Investment Per

question 47

Multiple Choice

Armidale Distributors is a distributor of DVDs.El Cheapo Electronics is a local retail outlet which sells blank and recorded DVDs.El Cheapo Electronics purchases DVDs from Armidale Distributors at $0.50 per DVD;DVDs are shipped in packages of 100.Armidale Distributors pays all incoming freight,and El Cheapo Electronics does not inspect the DVDs due to Armidale Distributors' reputation for high quality.Annual demand is 104 000 DVDs at a rate of 2000 DVDs per week.El Cheapo Electronics earns 20% on its cash investments.The purchase-order lead time is two weeks.The following cost data are available:
$\begin{array}{llr} \text {Relevant ordering costs per purchase order } &\$ 45.50\\ \text { Carrying costs per package per year: } &\\ \text { Relevant insurance, materials handling,} &\\ \text { breakage, etc, per year } &\$ 2.50\\\end{array}$

What is the required dollar annual return on investment per package?

• A)$2.50
• B)$50.00
• C)$10.00
• D)$0.50

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Definitions:

Preferred Stock Dividends

Dividends paid on preferred shares of a company which typically have a fixed dividend rate and priority over common stock in dividend payments.

Net Income

The total profit of a company after all expenses, including taxes and operating costs, have been subtracted from total revenue.

Operating Profits

Earnings before interest and tax (EBIT), which is the profit from a business's core operations excluding financing costs and taxes.

Profit Margin

A financial metric used to evaluate a company's profitability, calculated as net income divided by revenue.