Answer ALL questions. INFORMATION Read the following case study and answer the questions. MANAGING WORKING CAPITAL Electrosol Limited considers electricity to be the lifeblood of modern society. With the failure of Eskom to provide an uninterrupted supply of electricity in South Africa, Electrosol Limited's core business activity is the sale of backup electrical power supply units that will enable households to enjoy the luxury of uninterrupted power. This back-up solution will ensure endless access to devices and appliances. As the backup electrical power supply unit is relatively expensive, Electrosol Limited chose to offer the product for sale on credit. To improve its working capital management Electrosol Limited recently employed an ambitious, knowledgeable and progressive manager, Mariam Dube, who was responsible for all aspects pertaining to the inventory and debtors. When she started her job at the company, she discovered that credit was granted to as many of the applicants as possible and that adequate inventory was maintained to prevent stock-outs from occurring. The steady monthly demand for the electrical power supply was 250 units. The selling price of an electrical power supply unit was R80 000 and a mark-up of 60% on cost was used. All the sales are on credit and the collection period is 90 days. Collection costs of approximately R100 per unit sold were incurred. The annual holding cost of an electrical power supply unit was 0.24% of the unit cost of the item. The cost of placing an order for electrical power supply units was R50. The cost of capital was 15%. After two months of employment Mariam Dube made the following proposals to the directors: : The company should take advantage of a 5% discount from the manufacturer by ordering 100 electrical power supply units each time instead of ordering the economic order quantity. : A discount of 4.5% should be granted to those customers who settle their accounts within 10 days. She expects that this is likely to apply to 30% of the sales. QUESTION 1 REQUIRED 1.1 Critically discuss the working capital policy of the company before Mariam Dube was employed. 1.2. Calculate the annual carrying costs based on the EOQ. (Ignore the opportunity cost.) 1.3. Calculate the annual profit to the company, without considering Mariam Dube's proposals. Ignore the holding and ordering costs. 1.4. How much will the net annual saving from purchasing be if the company takes advantage of the 5% manufacturer's discount, as proposed by Mariam Dube? [30 MARKS] (8) 1.5. Determine the expected annual profit to the company if Mariam Dube's proposal of a 4.5% settlement discount to customers is approved. Ignore the holding and ordering costs. (9)