To implement the new arrangements will require reorganisation costs estimated at 10,000 which can be wholly claimed

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To implement the new arrangements will require reorganisation costs estimated at

£10,000 which can be wholly claimed as a business expense for tax purposes in the tax year before the system comes into operation. The rate of corporate tax is 33%, payable with a one-year delay.

Required:

(a) Determine the change in the economic order quantity (EOQ) caused by the new system.

Note: EOQ is given by where D=demand, or usage.

(b) Calculate the payback period for the proposal and comment on your results.

(c) Briefly discuss the suitability of the payback method for evaluating investments of this nature.

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