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?
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?
... The issues and opportunities have been identified. ... Situation Analysis Issue and Opportunity Identification Strong ... a more competitive, cost-efficient company. ...
... to determine the economic feasibility of expansionary opportunities and mergers. ... way to think of the cost of capital is as the opportunity cost of funds ...
... are outstanding, then its cost of capital is equal ... on the basis of its opportunity cost (Brealey, Myers ... the real options and the growth opportunities that are ...
... Another way to think of the cost of capital is as the opportunity cost of funds, since this represents the opportunity cost for investing in assets with the ...
... economies of scale, that is, the opportunity to spread ... and a shortage of good investment opportunities often turn ... During the oil price slump of the early 1980s ...
... its riskiness, must strive to earn the investor's opportunity cost. ... will still leave open opportunities to shift ... Monitoring costs may be expended to insure the ...
... This opportunity cost should be included in the project ... This will be an additional cost line which will ... FIN 215 Capital budgeting exercise take into account all ...
... The appropriate discount rate is the project's opportunity cost of capital. ... years appropriate discount rate is the project's opportunity cost of capital. ...
...Cost of equity capital is the opportunity return from ... order to take advantage of business opportunities as they ... The basic weighted average cost of capital (ka ...
