3) Splenda specializes in the making S\'mores cakes . The cost of making the S\'

Question

3) Splenda specializes in the making S'mores cakes . The cost of making the S'mores is as mentioned in the table. Recently Splenda has been facing a lot of problems with the oven as some of its chocalate chips are not sticking to the cracker and hence they have to scrap them. This accounts to 10% of the S'mores actually made. A vendor feels that installation of a new oven which has just been introduced in the market is the solution to this problem. He says that installation of this oven with temperature sensors that would have a one time cost $90,000 in year 0 will completely reduce the loss due to the defective items. Splenda operates 40 hours a week for 48 weeks in a year. It can sell a box of S'mores for $ 15.

Assuming Splenda can sell all the cakes it makes which option would you recommend for a 10 year life to Splenda if the cost of capital for Splenda is 6%.

Number of boxes per hour is 4

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Cost Material Cost per box $                1.93 Labor cost (2 operators@15 per hour) $             30.00 Electricity ($/hr) $                1.20 _________________________

Explanation / Answer

Ans:

Splenda works in the making S'mores cakes . The expense of making the S'mores is as said in the table. As of late Splenda has been confronting a considerable measure of issues with the broiler as some of its chocalate chips are not adhering to the saltine and consequently they need to scrap them. This records to 10% of the S'mores really made. A seller feels that establishment of another stove which has quite recently been presented in the business sector is the answer for this issue. He says that establishment of this broiler with temperature sensors that would have a one time taken a toll $90,000 in year 0 will totally decrease the misfortune because of the damaged things. Splenda works 40 hours a week for 48 weeks in a year. It can offer a container of S'mores for $ 15.

Accepting Splenda can offer every one of the cakes it makes which alternative would you prescribe for a 10 year life to Splenda if the expense of capital for Splenda is 6%.

When these estimations have been made they should be joined on a weighted normal premise to infer the mixed expense of capital for an organization. We do this by duplicating the expense of every thing by the measure of exceptional financing connected with it as noted in the accompanying table:

All out Debt Funding x Percentage Cost = Dollar Cost of Debt

All out Preferred Stock Funding x Percentage Cost = Dollar Cost of Preferred Stock

All out Common Funding x Percentage Cost = Dollar Cost of Common Stock

=Total Cost of Capital

Cost Material Cost per box $1.93 Labor cost ( 2 operators at 15/ hr) $30.00 Electricity ($ /hr) $1.20 Total Expense $33.13

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