Current Asset Management Solutions 7

# Current Asset Management Solutions 7 - B 27,250 C 32,500 D...

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Old Exam Questions - Current Asset Management - Solutions Page 7 of 21 Pages A. 16.09% B. 17.09% * C. 18.09% D. 19.09% E. 10.09% Before-Tax ROI = Δ EBIT / (Investment in Accounts Receivable) Before-Tax ROI = \$108 / \$597 = 18.09% YOU ARE GIVEN THE FOLLOWING INFORMATION FOR PROBLEMS 8 - 9: A company believes that it will need to order 225,000 units of inventory over the coming year. The current price per unit of inventory is \$2 per unit. Fixed ordering charges for inventory are \$200 per order and carrying costs for inventory are equal to 5 percent of the average value (price) of the inventory carried. 8. Determine the optimal (economic) order quantity. Hint: total inventory costs will be \$3,000. A. 25,000
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Unformatted text preview: B. 27,250 C. 32,500 D. 35,000 * E. 30,000 EOQ = [(2)(\$200)(225,000) / (\$2)(.05)] ½ = 30,000 9. Assume now that the firm has the option of taking a 10 percent discount (price of \$1.80 per unit) if it orders 37,500 units per order (6 orders per year). Also assume that the firm has decided to carry, on a permanent basis, 5,000 units of safety stock. Determine the new level of total inventory costs if the firm both takes the quantity discount and carries safety stocks of 5,000 units. A. \$3,385.50 * B. \$3,337.50 C. \$3,418.50 D. \$3,492.50 E. \$3,451.50 Original TIC = (30,000/2)(\$2)(.05) + (\$200)(7.5) Original TIC = \$1,500 + \$1,500 = \$3,000 New TIC = [(37,500/2) + 5,000](\$1.80)(.05) + (\$200)(6)...
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## This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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