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Assume Fisher Food Products is thinking about 3 different size offerings for the issuance of additional shares

Size offer Public Price Net to Corporation
a. 1.6 million $40 $36.70
b. 6.0 million 40 37.28
c. 25.0 million 40 38.12

What is the percentage underwriting spread for each size offer?
What principle does this demonstrate?

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a) Spread = $40 - $36.70 = $3.30
Percentage underwriting spread = 3.30/40=8.25%

b) Spread = ...

Solution Summary

A comparison to quantity discount is made.

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Operations Management Inventory Quantity Discounts

Please show your calculations and round to FOUR decimal places.

A retailer needs to choose between two suppliers for one of its products. The only criterion used for the decision is the cost. The following information about the product is available:

Demand 200 a week
Ordering cost (for all suppliers) $75 per order
Holding cost 20% of the unit cost
Working weeks 50 a year

The retailer has narrowed down the choices to two suppliers. The following shows the price-break schedule for each supplier:
Quantity Unit Price Quantity Unit Price
1-299 $14.00 1-249 $14.10
300-699 13.80 250-449 13.90
700+ 13.60 450+ 13.70

A. Which supplier should the retailer choose? Explain and support your answer with appropriate calculations.
B. What is the optimal lot size for the item? (Note: There has to be only ONE choice, regardless of supplier).
C. What is the total annual cost of inventory for the chosen (best) lot size?

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