Your firm usually uses about 200 to 300 tons of steel per year. Last year, you p

Question

Your firm usually uses about 200 to 300 tons of steel per year. Last year, you purchased 100 tons more steel than needed (at a price of $200 per ton)

Your firm usually uses about 200 to 300 tons of steel per year. Last year, you purchased 100 tons more steel than needed (at a price of $200 per ton). In the meantime, the price of steel jumped to $250 per ton delivered (which means that any firm selling the steel must pay any shipping costs), and the price has since stabilized at that price. The cost of shipping steel to the nearest buyer would be $20 per ton. In the meantime, a business next door just went bankrupt, and the bank is offering a special deal where you can buy another 100 tons of steel for $180 per ton. Assume that the interest rate is 0%. Which of the following are correct?
a. Sell your 100 tons at the going market price of $250, and make a profit of $30 per ton ($50 less $20 cost of shipping).
b. Buy the 100 tons next door at $180, and resell at a price of $250 less $20 shipping, for a net profit of $50 per ton.
c. Hold onto your 100 tons, and wait until it is needed for production.
d. Buy the 100 tons next door at $180, and hold onto it until it is needed in production

Explanation / Answer

d. Buy the 100 tons next door at $180, and hold onto it until it is needed in production

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