Question

Wisconsin Snowmobile Corp. is considering a switch to level production. Cost efficiencies would occur under level production, and aftertax costs would decline by $27,200, but inventory would increase by $340,000. Wisconsin Snowmobile would have to finance the extra Inventory at a cost of 9.0 percent. a-1. Determine the extra cost or savings of switching over to level production. a-2. Should the company go ahead and switch to level production? Yes No b. How low would interest rates need to fall before level production would be feasible? (Input your answer as a percent rounded to the nearest whole number.) Interest rate %

Wisconsin Snowmobile Corp. is considering a switch to level production. Cost efficiencies would occur under level production, and aftertax costs would decline by $27,200, but inventory would increase by $340,000. Wisconsin Snowmobile would have to finance the extra inventory at a cost of 9.0 percent.

a-1. Determine the extra cost or savings of switching over to level production.

a-2. Should the company go ahead and switch to level production?

• Yes

• No

b. How low would interest rates need to fall before level production would be feasible? (Input your answer as a percent rounded to the nearest whole number.)