Suppose the weekly demand for an item is 3,000 units. It costs 13.7% of the value of the item to hold one for a year. Our supplier delivers pallets of 100 units to us, each one costing $2,000. They are capable of delivering 8 pallets per day. The cost of a delivery (ordering, contracting, physical delivery and receipt) is $350 per order. The business operates all 365 days of the year. A student solves this problem as follows:
EOQ = (2*3,000*2000/(0.137*350))0.5 = 500 units per day (rounded to the nearest whole number)
What mistakes did the student make? Explain.

The gilbert instrument corporation is considering replacing the wood steamer it currently uses to shape guitar sides. the steamer has 6 years of remaining life. if kept,the steamer will have depreciaiton expenses of $650 for five years and $325 for the sixthyear. its current book value is $3,575, and it can be sold on an internet auction site for$4,150 at this time. if the old steamer is not replaced, it can be sold for $800 at the endof its useful life. gilbert is considering purchasing the side steamer 3000, a higher-end steamer, whichcosts $12,000 and has an estimated useful life of 6 years with an estimated salvage value of$1,500. this steamer falls into the macrs 5-year class, so the applicable depreciationrates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. the new steamer is fasterand allows for an output expansion, so sales would rise by $2,000 per year; the newmachine's much greater efficiency would reduce operating expenses by $1,900 per year.to support the greater sales, the new machine would require that inventories increase by$2,900, but accounts payable would simultaneously increase by $700. gilbert's marginalfederal-plus-state tax rate is 40%, and its wacc is 15%.a. should it replace the old steamer? b. npv of replace = $2,083.51