chapter2A - Additional Solutions Chapter Two Time Value of...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Additional Solutions: Chapter Two: Time Value of Money 2S.1 You can assume that one month is the shortest interval of time for which the quoted rental rates and salaries apply. Assembling the batteries will require 24 person-months, and the associated rental space. To maximize the interest you receive from your savings, and minimize the interest you pay on your line of credit, you should defer this expenditure till as late in the year as possible. So you leave your money in the bank till December 1, then purchase the necessary materials and rent the industrial space. Assume that salaries will be paid at the end of the month. As of December 1, you have $100 000(1.005) 11 = $105 640 in the bank. You need to spend $360 000 on materials and $240 000 to rent space. After spending all you have in the bank, you therefore need to borrow an additional $494 360 against your line of credit. As of December 31, you owe $494 360(1.01) = $499 304 to the bank, and you owe $240 000 in salaries. So after depositing the government cheque and paying these debts, you have 1 200 000 – 499 304 – 240 000 = 460 696 dollars in the bank. This example illustrates one of the reasons why ‘Just-in-Time’ (‘JIT’) manufacture has become popular in recent years: you want to minimize the time that capital is tied up. An additional motivation for JIT would become evident if you were to consider the cost of storing the finished batteries before delivery.
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern