Question

Jackie is a lady entrepreneur from Chicago, Illinois. She owns and runs a pebbles manufacturing company called ‘JK Pebbles Inc.’. She has customers both within and outside of the United States of America. She buys naturally available rocks (in different colours) like granite, marble and quartz from the local quarries. The raw material is put through processes of crushing, tumbling and polishing before being packed and dispatched to the customer. Jackie’s factory is in operation for 250 days a year. Her products are mainly used by her customers for landscape and garden designing.

Data given:
(1) Number of orders placed during the year for the raw material – ‘white quartz’ = 5. (2) Quantity per order = 50 tonnes = EOQ (Optimal order quantity).
(2) Total ordering cost for the year 2016 = $1,000.
(3) Carrying cost per unit per year = $40
(4) Number of working days in a year = 250
(5) An order for white quartz was placed with the supplier on June 1, 2015 and the same was received on June 6, 2015.

Jackie wants to accumulate a fund of $100,000 in six years (from December 31 of the current year) to retire a long-term note. Three years ago, the board of directors had passed a resolution instructing the treasurer to make ten equal annual deposits in a fund earning 9% compounded annually. Because no one knew how to compute the equal deposits, the treasure decided to deposit $ 9,000 at the end of each year. The fourth deposit was made on December 31 of the current year. FV of ordinary annuity for 4 years and 6 years at 9% = 4.5731 and 7.5233 respectively , FV of $1 after 6 years at 9% = 1.67710

Jackie has the following capital structure on December 31
Equity shares (200,000 Shares) - $6,000,000
5% Preference shares- 1,000,000
8% Debentures- 2,000,000
Total - 9,000,000
The company’s shares are currently selling for $25. The company is expected to pay a dividend of $2 per share and is expected to grow at 8% in the coming years. Assume a tax rate of 40%.

Q1).The company follows the Economic Order Quantity (EOQ) model for ordering raw material from its suppliers. What is the Annual demand for the raw material item?

Group of answer choices

50 tonnes

200 tonnes

250 tonnes

300 tonnes

Q2).Ordering cost per order ?

50

200

250

300

Q3.)Total carrying cost ?

1000

2000

1500

2000

Q4).

Total inventory cost

Group of answer choices

4000

2000

3000

2500

Q5).

What is the expected time between orders?

Group of answer choices

250 tonnes

200 tonnes

100 tonnes

50 days

Q6).Based on the assumption that the supplier takes the same amount of lead time as in 2015, calculate the reorder point for white quartz. Exclude the day of placing the order and the day of receipt of the material in calculation of lead time. "

Group of answer choices

4 tonnes

6 tonnes

8 tonnes

10 tonnes

Q7).What equal annual deposits should be made during the next six years, starting a year from now, if exactly $100,000 is to be accumulated in the fund to retire the long-term note?"

Group of answer choices

16667

10667

4117

6237

Q8).

Calculate cost of equity share

Group of answer choices

0.08

0.1

0.12

0.16

Q9).

Calculate cost of debt

Group of answer choices

0.032

0.048

0.08

0.113

Q10).

Calculate weighted average cost of capital

Group of answer choices

0.1229

0.1117

0.13

0.086

Answer 1

Hello! As you have asked multiple questions, I am answering the first question. Please ask each question separately.

Q1)

We have to find the annual demand of the raw material item. EOQ is 50 tonnes (given). As per defination, EOQ is:

Q=

V2DS/H

Where: Q is the optimal Order Quantity (Given 50 tonnes)

D is annual demand.

S is Order cost per order (Given Total order cost is $1000 for 5 orders. Hence per order cost is $1000/5= $200)

H is Carrying cost per unit per year (Given $40 per unit per year)

Putting the values in the equation, we have:

50=

V2.r D.x200/40

$^{2}50$=10D

D= 250

Solving the equation, we have D = 250 tonnes.

We have another simpler way of finding the annual demand.

Given 5 orders are placed for 50 tonnes each. Hence annual demand is 5x50 = 250 tonnes.