(a) Kilio Company is a nationwide distributor of billing system for credit sale of sh. 180 Million annually. National Bank of Kenya (NBK), Kilios principal bank offers to establish a new Concentration Banking System for a flat fee of sh. 100,000 per year. The bank estimates that Mailing and Collection time can be reduced by three days.

Required:-

(i) By how much will Kilios cash balances be increased under the new system?

(ii) How much extra interest income will the new system generate if the extra funds are used to reduce borrowing under Kilios line of credit with NBK assuming that the borrowing rate is 12%.

(iii) Should Kilio accept NBKs offer if collection costs under the old system are sh. 40,000 per year (10 Marks)

(b) Assuming a 360 day year, calculate what the average investment in inventory would be for a firm, given the following information in each case:

(i) The firm has Sales of sh 600 Million, a gross Profit Margin of 10%, and an inventory turnover ratio of 6.

(ii) The firm has a cost-of-goods sold figure of sh. 480 Million and an average of inventory of 40 days.

(iii) The firm has a cost-of-goods sold figure of sh. 115 Million and an inventory turnover rate of 5.

The firm has a Sales figure of sh. 25 Million, a gross Profit Margin of 14%, and an average age of inventory of 45 days. (15 Marks)