It is now November 2022 and the financial results for November 30th2022 have been published. Keener has forecast the following for the year ended 30th of November 2023:- Credit management Sales are forecast to be 10.5m for the year ahead. Receivables forecast to be 1,200,000 The cost of financing receivables remains the same. Inventory management Monthly demand for its inventory remains the same but the purchase cost has increased to 2.50 per unit. The cost per order has increased to 1.30. The holding cost of 1 unit p.a. remains at 1. Cashmanagement Keener has forecast the following for the year ended 30th of November 2022: - Credit management Sales to increase to 8 million for the year to come. Receivables forecast to be 1,150,000. The cost of financing receivables is covered by an overdraft at the interest rate of 5% p.a. Keener is now considering offering a cash discount of 0.5% for payment of debts within 20 days. It is expected that 25% of customers will take up the discount. Inventory management Keener is also trying to find the optimum order quantity for its inventory. Monthly demand for its inventory which costs 2.30 per unit is 80,000 units per month. The cost per order is currently 1.25. The holding cost of 1 unit p.a. is 1. Keener's suppliers have offered a discount of 0.5% per unit for orders of 2,000 units or more. Cash management Keener has a constant demand for cash totalling 5,000,000 p.a. It can replenish its current account by selling a constant amount of gilts which are held as an investment earning 3% p.a. The cost per sale of gilts is a fixed 8 per sale. The management of Keener have also considered using the Miller-Orr model of cash management. They have considered a lower limit of 1,000,000, the standard deviation of the daily cash flows is 40,000 and it will cost 12 per transaction to transfer money to or from the bank. The interest rate is 3% p.a. Keener Ltd (Keener) is a UK company that manufactures water bottles, it is one of the largest suppliers of these water bottles in the UK today. It has a year-end of 30th of November. The liquidity ratios have been calculated for the previous 2 years: - discount of 0.4% for payment of debt within 18 days, assuming the customer percentage take-up is the same as was forecast for 2022. (20 marks) b) Calculate the optimum quantity of inventory to order if the suppliers now offer a discount of 0.6% for orders of 2,200 units or more. (20 marks) c) Calculate the lower limit, upper limit and return point for Keener if the standard deviation of cash flows is 27,000 per day and briefly explain one other approach to managing cash. (10 marks)
