opportunity cost of capital
The following discussion based on Gabriel Kahn, "Made to Measure: Invisible Supplier Has Penney's Shirts All Buttoned Up, " Wall Street Journal, September 11, 2003, describes a new inventory system used by J.C. Penney:
"In an industry where the goal is rapid turnaround of merchandise, J.C. Penney stores now hold almost no extra inventory of house-brand shirts. Less than a decade ago, Penney would have stored thousands of them in warehouses across the U.S., tying up capital and slowly going out of style. The entire program is designed and operated by TAL Apparel Ltd., a closely held Hong Kong shirt maker. TAL collects point-of-sale data for Penney's shirts directly from its stores in North America for analysis through a computer model it designed. The Hong Kong company then decides how many shirts to make, and in what styles, colors, and sizes. The manufacturer sends the shirts directly to each Penney store, bypassing the retailer's warehouses and corporate decision makers."
a) Discuss how this illustrates the concept of the opportunity cost of capital.
b) How does this innovation also help in demand management?
https://brainmass.com/economics/production/opportunity-cost-of-capital-452996
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The concept of opportunity cost of capital is illustrated in the sense that opportunity cost of holding a large amount of inventory was much higher than the benefits derived from ...
Solution Summary
a) Discuss how this illustrates the concept of the opportunity cost of capital.
b) How does this innovation also help in demand management?
Market Rates and Cost of Capital
Please see attached file for tables.
What does a company's cost of capital represent and how is it calculated? How do market rates and the company's perceived market risk impact its cost of capital, and how does the company's debt to equity mix impact this cost of capital? Using the information provided, develop a spreadsheet to calculate weighted average cost (WAC) and marginal weighted average cost (MCC) of capital for Strident Marks?
You have developed the following table concerning the cost of capital sources for Strident Marks:
The future investment opportunities and the corresponding Internal Rate of Return (IRR) follow. As a result of operating its business operations profitably, Strident Marks has $1,000,000 to invest. Considering Strident Marks' weighted average cost of capital and MCC, rank the investment opportunities and indicate which ones would be accepted, which (if any) would be rejected and why.