PROBLEM $1$: Week $9$ and Week $10$ Working Cap Mgmt

Brooke Army Medical Center dispenses $275,000$ bottles of brand name pharmaceutical annually.

The optimal safety stock $($which is on hand initially$)$ is $1,000$ bottles. Each bottle costs the center $\backslash (\backslash$$ $12\backslash ),$

inventory carrying costs are $25$ percent, and the cost of placing an order with its supplier is $\backslash (\backslash$$ $175\backslash ).$

a$.$ What is the economic order quantity?

b$.$ What is the maximum inventory for this medication?

c$.$ How often must the center order $($in days$)?$

PROBLEM $2$: Week $9$ and Week $10$ Working Cap Mgmt

Northeast Baptist buys $\backslash (\backslash$$ $400,000\backslash )$ of a particular item $($at gross prices$)$ from its major supplier,

Cardinal Health, which offers NE Baptist terms of $\backslash (2/10\backslash ),$ net $30.$ Currently, the hospital is paying the

supplier the full amount due on Day $30,$ but it is considering taking the discount, paying on Day $10$ and replacing the trade credit with a bank loan that has a $12$ percent rate.

a$.$ What is the amount of free trade credit that Baptist obtains from Cardinal Health? $($Assume $360$ days per year throughout this problem.$)$

b$.$ What is the amount of costly trade credit?

c$.$ What is the approximate annual cost of the costly trade credit?

d$.$ Should Baptist replace its trade credit with the bank loan? Explain your answer.

e$.$ If the bank loan is used, how much of the trade credit should be replaced?