Jasper Valley Motors (JVM) is a family-run auto dealership selling both new and used vehicles. In an average month, JVM sells a total of 160 vehicles. New vehicles represent 60 percent of sales, and used vehicles represent 40 percent of sales. Max has recently taken over the business from his father. His father always emphasized the importance of carefully man-aging the dealership’s inventory. Inventory financing was a significant expense for JVM. Max’s father consequently taught him to keep inventory turns as high as possible.
a. Examining the dealership’s performance over recent years, Max discovered that JVM had been turning its inventory ( including both new and used vehicles) at a rate of 8 times per year. What is JVM’s average inventory (including both new and used vehicles)?
b. Drilling down into the numbers, Max has deter-mined that the dealership’s new and used businesses appear to behave differently. He has determined that turns of new vehicles are 7.2 per year, while turns of used vehicles are 9.6 per year. Holding a new vehicle in inventory for a month costs JVM roughly $175. Holding the average used vehicle in inventory for a month costs roughly $ 145. What are JVM’s average monthly financing costs per vehicle?
c. A consulting firm has suggested that JVM sub-scribe to its monthly market analysis service. They claim that their program will allow JVM to maintain its current sales rate of new cars while reducing the amount of time a new car sits in inventory before being sold by 20 percent. Assuming the consulting firm’s claim is true, how much should Max be willing to pay for the service?