Q1. (a) Sudajaya Berhad is contemplating making several changes in its working capital management. Firstly, Sudajaya Berhad is considering the change of its current ordering policy to the economic order quantity model (EOQ). The demand for its products is forecasted to be 160,000 units in the coming year and it has traditionally ordered 10% of its annual demand per order. The ordering cost is expected to be RM400 per order while the holding cost is expected to be RM5.12 per unit per year. A buffer inventory of 5,000 units will be maintained, whether orders are made by the traditional method or the EOQ model. Secondly, on its receivables management, Sudajaya Berhad is evaluating the introduction of an early settlement discount of 2% for customers who pay within 30 days with a maximum average payment period of 60 days for credit customers who do not take up the discount. It is expected that 25% of credit customers will take up the discount if it were offered. Moreover, it is forecasted that administration and operating cost savings of RM753,000 per year will be made after improving operational procedures and introducing the early settlement discount. Credit sales of Sudajaya Berhad are currently RM87.6 million per year and trade receivables are currently RM18 million. Credit sales are not expected to change as a result of the changes in receivables management. The company has a cost of short-term finance of 5.5% per year. Required: (i) Compare and contrast the cost of the current ordering policy and the cost of the proposed ordering policy using the EOQ model. Appraise whether the EOQ model should be adopted. (10 marks) (ii) Evaluate the feasibility of the proposed changes in receivables management. Assuming that only 25% of customers take up the early settlement discount, determine the maximum early settlement discount that could be offered. (10 marks) (b) Working capital management inadvertently involves trade-off between profitability and liquidity. Justify why striking a balance between profitability and liquidity is crucial in managing an efficient working capital. (10 marks)