PLEASE ANSWER: WHY DO YOU THINK THE PUBLISHER IS CONSIDERING OFFERING DAN THE BUYBACK DEAL? *Note: all calculations have been done.

Dan McClure is trying to decide on how many copies of a book to purchase at the start of the upcoming selling season for his bookstore. The book retails at $28. The publisher sells the book to Dan for $20. Dan will dispose all unsold copies of the book at 75% off the retail price, at the end of the season. Dan estimates demand for this book during the selling season is normally distributed with a mean of 150 and a standard deviation of 40.

Selling price = 28

Purchase price = 20

Mean = 150

Standard deviation = 40

Unit underage cost (Cu) = (Selling price purchase price) = (28 20) = 8

Salvage value = 25% of 28 = 7

Unit overage cost (Co) = (purchase price salvage value) = (20 7) = 13

Dan should order 138 books to maximize profit.

If Dan orders 138 books, Dans expected profit will be $873

The publisher is thinking of offering the following deal to Dan. At the end of the season, the publisher will buy back unsold copies at a predetermined price of $15. However, Dan would have to bear the cost of shipping unsold copies back to the publisher at $1 per copy. Why do you think the publisher is considering offering Dan the buyback deal?

Given the buy-back offer, Dan should order 157 books