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Answer :
The cost justified discount rate would need to be slightly above the seller's cost of capital for the "3/10, net 45" discount to be cost justified.
1. The inefficiency in this scenario is the restriction imposed by France's labor unions on Sephora's late-night operations. By preventing the retailer from staying open late, the unions are limiting the store's ability to serve its customers during the time when it generates a significant portion of its business. This inefficiency results in lost sales opportunities for Sephora and negatively impacts the income of the sales staff who work the late shift.
To profit from this inefficiency, Sephora could explore alternative options that comply with the labor laws while still maximizing its sales potential. One approach could be to focus on expanding its online presence and offering 24/7 online shopping options. By adapting to the labor laws and leveraging technology and innovative marketing strategies, Sephora can mitigate the impact of the inefficiency and continue to thrive in the market.
2. To determine whether the copy company should hire another employee or buy another copier, we need to analyze the impact of these additions on productivity and cost.
When the company added two copiers, the output increased by 100,000 pages per day. However, adding five workers resulted in a productivity increase of 50,000 pages per day. This implies that the marginal productivity of the copiers is higher than that of the workers. Considering that copiers cost about twice as much as workers, it would be more cost-effective for the copy company to buy another copier rather than hiring another employee.
3. The expression "3/10, net 45" means that customers receive a 3% discount if they pay within 10 days. Otherwise, they must pay in full within 45 days. To determine the seller's cost of capital needed for the discount to be cost justified, we need to consider the opportunity cost of the cash received early. Let's assume the seller's cost of capital is 10%. If customers pay within 10 days, the seller receives cash earlier than if they pay within 45 days. By receiving cash earlier, the seller can invest it and earn a return. If the discount is 3%, it should compensate for the return the seller could earn by investing the cash.
In this case, the cost justified discount rate would be slightly above 10% since the seller's cost of capital is 10%. If the cost justified discount rate is higher than the seller's cost of capital, the discount is not cost justified.
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